What is a default? Here’s what you should know

Updated 6 June, 2024

A default is what happens when you fail to make the repayments on a debt. After you miss multiple payments, a lender may choose to close your account and write the debt off of their books. When this happens, a default is recorded in your credit file, and the bank, lender, or credit card company may move to seize assets to cover your debt.

Defaults can happen regardless of how much money is owed, whether you owe £10 or £10,000. Keep in mind that missing one payment isn’t likely to result in a default. Most companies will wait for 3-6 months of missed payments before sending an account into default, but each situation is different.

Broadly speaking, a default is a sign that you can’t afford your current payments. A default can significantly impact your eligibility for credit options in the future. Therefore, it’s important to know exactly what a default is and what you should do in the event you get one. We’ll explore that here.

A default can occur on any type of debt including:

A default can occur on any type of account based on credit, although it doesn’t necessarily need to be a standard credit product. Some of the accounts a default could occur on include:

• Mobile contracts
• Personal loans
• Secured loans
• Mortgages
• Utilities (gas, electric and water)
• Credit cards
• Car finance
• Buy now, pay later services like Klarna

How does a default affect my credit?

A default will always have a negative effect on your credit score. But how does that actually impact your life? There are two main ways.

First, a default makes it harder to get credit. A default on your credit report tells lenders that they’re taking on a risk by extending a line of credit to you. As a result, many lenders or banks will be reluctant to give you credit.

Secondly, a default makes credit more expensive. In the event you do receive credit, it will come at a price. You may see high interest rates that cause any outstanding balance to accrue interest rapidly. Over time, that could represent hundreds or even thousands of pounds in additional payments.

Can I get approved for a loan if I have a default on my credit report?

Yes, it is possible to get approved for a loan if you have a default on your credit file. However it does make qualification more difficult. This is because the factors that influence your credit score ultimately are tools that lenders use to assess your creditworthiness. When you have a default on your credit history, it signals that the lender is taking a bigger risk by lending to you. Therefore, lenders may be hesitant to give you a loan.

If you want to get approved for a loan and have a default, focus on building your payment history. Building consistency in your payments shows that you can be relied upon, which will help lenders trust you.

How long do defaults stay on your credit report?

Much like County Court Judgements, missed payments, and bankruptcies, a default is visible on your credit report for up to six years. Assuming you don’t add any other negative markers to your credit file, the impact of your default will decline over time.

However, six years is a long time to have this negative marker on your credit file. If you take out credit with a high interest rate during that time, you could find yourself spending thousands of pounds in interest payments by the time your default is no longer visible in your credit report.

Therefore, it’s essential that you focus on making timely payments. Always pay on time and at least make the minimum payment. However, keep in mind that only making the minimum payment can lead to increased interest, costing you much more over time.

Related read: Here’s how credit card minimum payments keep you stuck in debt

What should I do if I’m facing a default?

If you’re facing a default, the worst thing you can do is nothing. Here are a few actions you can take when you believe a default is imminent:

• Make payments: If you simply haven’t been making payments, resume them and pay off what you can. If your lender has been preparing to file a default, making a payment could make them reconsider.
• Contact your bank, lender, or credit card company: Get in touch with them, tell them what’s going on, and ask to restructure your payments. The worst thing that can happen is that they say no and proceed with a default. However, it’s more likely that they’ll work with you. After all, they only make money when you make repayments, so it’s usually in your lender’s best interest to make reasonable accommodations for your repayments.

How do I fix a default on my credit report?

Unless a default was added to your credit file in error, there is no way to remove it from the record until 6 years have passed. However, there are a few ways to minimise the impact that a default has:

• Pay off the balance ASAP: While paying the balance of your default off won’t remove it from your record, it will get marked as ‘satisfied’. Having a satisfied default may not change your credit score but it may change how creditors view your file. Paying off a default (even if you’re doing it in stages) means whoever you owe is less likely to issue a CCJ against you to recoup the money lost.
  
  
• Consider adding a notice of correction to your credit file: If you missed your payments due to extenuating circumstances, it may help to add a notice of correction to your credit report. A notice of correction lets you explain the circumstances surrounding an item on your credit report and why it’s not reflective of you as a borrower. While this note won’t change your credit score or remove the default, it could impact your ability to access credit and more favourable interest rates.
  
  Learn more about filing a notice of correction in our article dedicated to the subject.
  
  
• Avoid additional negative markers: As time passes, the impact of a default on your credit file fades unless you add additional negative markers. While this won’t ‘fix’ your credit score or credit report, you may qualify for better credit products after a few years.
  
  

Will my credit score go up when my default is removed?

Once a default is removed from your credit report, you might benefit from an increase in your score. However, it ultimately depends on the overall health of your credit report. As we mentioned above, focusing on building a strong credit profile without any additional negative markers will help you rebuild your credit score.

‍Pave Helps You Build Healthy Credit The Proper Way

A default will seriously damage your credit score and your ability to access credit. Do whatever you can to avoid one. If your credit score has already taken a hit from a default, rebuilding your credit can feel like climbing a mountain. Fortunately, Pave is here to help.

Pave is one of the UK’s best credit building apps. Through credit-builder accounts, bills monitoring, and supported learning, we’ve helped hundreds of thousands of people across the UK improve their credit score and stay on top of their finances.

Pave helps boost your credit score by reporting your payment behaviour to the UK’s three major credit bureaus, including TransUnion, Equifax, and Experian. Plus, by monitoring your bank account with Pave’s Bills Alerts, you can get alerts on bills that could impact your credit score.

To get started building — or rebuilding — your credit score, download Pave from the App Store or Google Play today!

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*Pave cannot guarantee an increase in your credit score. Some features are subject to approval.