Managing your finances can sometimes be challenging, and missing a payment can happen to anyone. But what happens if you miss several? This is where a “default” comes in. In this blog, we’ll explain what a default is, how it affects your credit, and what steps you can take if you find yourself in this situation.
What’s a default?
A default happens when you borrow money but are unable to keep up with the agreed payments. After a few months of trying to arrange repayment, the lender may decide they’re unlikely to recover the money and close the account. This is then marked as “in default” with the credit reference agencies.
Defaults can occur on any type of credit – from loans and credit cards to phone contracts or utility bills like water and energy. For example, if you borrowed money through a loan and didn’t meet the repayment terms, this could lead to a default.
Defaults can happen with any amount, large or small. They usually occur after several missed payments, typically over a period of 6 months. During this time, creditors will try to contact you to arrange repayment.
If you enter into an insolvency arrangement like an IVA (Individual Voluntary Arrangement) or DRO (Debt Relief Order), all your accounts will be marked as defaulted, making it harder to access credit in the future.
Will it affect my credit file?
Yes, a default stays on your credit file for up to 6 years from the date the account defaulted, even if you pay off the debt. This is why it’s always better to arrange a payment plan, even if you can only pay a little each month, rather than letting the debt default.
If you’re unsure about what’s on your credit file, you can check for free using services like Clearscore (www.clearscore.com). If you believe a default has been applied in error, you can appeal to the Credit Reference Agencies to have it corrected.
Will It make It harder to get credit in the future?
Yes, having a default can make it more difficult to get credit in the future. Lenders may be hesitant to approve your application, as it shows you’ve struggled to repay credit in the past, or other lenders have been unable to recover their debt after repeated attempts.
What are the consequences of a default?
Your lender may sell the debt to a debt collector, which could lead to additional charges being added to the amount you owe. In some cases, they may start court proceedings to recover the debt, which could result in an attachment of earnings or deductions from benefits.
What can I do?
Although a default remains on your file for 6 years, you can still take action. Arranging to repay the debt as soon as possible is important. Once paid, the default will be marked as “settled” on your credit file, which looks better to future lenders.
We’re here to help
At The Money Co-op, we understand that life doesn’t always go to plan, and sometimes, keeping up with repayments is tough. We’re here to help. If you’re struggling, get in touch with us as soon as possible. There are ways we can assist, and it’s always better to reach out early to discuss your options. Here’s how to get in touch.
