A simple Guide to Understanding How Defaults Affect Your Credit Report

How does having one or multiple defaults affect your credit report? Does dropping one default lead to a rise in your credit score? Continue reading the post and learn how defaults affect your credit score and much more.

How Does Changing Circumstances Lead to Defaults?

There is no doubt that missing a payment can cause you to get a bad credit score, even the smallest default on a payment can have the biggest effect on your credit score. People with bad credit will already find it hard to apply for loans and different forms of finance, so missing another payment will simply harm your credit score even more.

Particular events and changing circumstances your life may lead to defaults. For instance, when you’re taken ill and become unable to repay your existing loans. Such cases can present minimal time frames between your default dates. It typically means that your entire 6-year credit history can be erased from your credit report within a few months.

These cases can prove to be a daunting waiting game spanning for months. Individuals with several defaults that have existed for a long time remain with many unanswered questions whether the removal of one default case can have any positive result.

Does Your Credit Score Improve When Defaults are Dropped?

Defaults are generally a negative marker. However, if your credit report only has one, your credit score is likely to improve when it’s removed. But this applies only when you don’t have many present negative markers like CCJ.

Unfortunately, most individuals have more than one Default on their credit reports due to unprecedented changes in their financial circumstances. These changes lead to hard economic times overall for several credit accounts. As a result, it’ll be hard for you to notice any improvement in your credit score when one default is removed. Thus, in a lenders position, you’ll still be categorized as “high risk” since you’ve failed to meet the conditions of the credit agreement.

In simple terms: When one default is dropped from your credit report, it won’t make any significant difference when you still hold other multiple defaults. Your credit file should be free from any negative markers for you to realize any positive change in your score.

What is a default?

Defaults generally occur when you miss payments forcing your lender or creditor to close your financial accounts. It may happen to accounts you hold in banks, utility suppliers, or mobile phone firms. Furthermore, defaults may occur regardless of the amount you owe your lender. Usually, they take effect after consistent non-payment of the debt on a period of three to six months. However, this can vary as per the lender’s terms and conditions. Thus, you should always make timely payments without skipping due repayment dates.

How Long Does it Take for a Default to be Removed from Your Credit File?

Regardless of whether you pay off your debt, defaults remain on your credit file for six years. The good news, however, is that your lender can’t re-register your default once it has been cleared. This applies to even when you still have some un-cleared amounts. You must do your due diligence and repay your remaining amount as your lender may file a CCJ against you.

If you need to apply for finance such as a loan or a mortgage, we recommend waiting until the default has been completely wiped off your credit history. The reason for this is that no direct lenders offer any loans or finance with no credit checks, so when they come to run a credit check on you, they will see that you have a default that is still active. You should wait until this has completely been rectified on your credit score before you apply for any additional loans or finance.

Final thoughts

Remember, a lender can be obliged to sell your debt to credit/debt collectors. But the lender must clearly indicate this on your credit report to prevent it from looking like another default. Furthermore, dates and amounts are supposed to remain intact to avoid paying more or wait more extended periods for your default removal.