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What is a Credit Default and How Do I Fix It?

Jun 11, 2020 | Finance Tips

If you’ve ever found yourself in a situation where you were struggling to pay some bills or loans, there’s some chance you might have a default listed on your credit report.

If you’ve ever found yourself in a situation where you were struggling to pay some bills or loans, there’s some chance you might have a default listed on your credit report.

A default is effectively an overdue debt and it can seriously hurt your chances of obtaining credit in the future. The good news is there are ways in which you can potentially improve your credit report which may make it easier for you to borrow money and access credit in the future.

More often than not, obtaining a default is as simple as not paying a bill on time. If that bill is equal to or greater than $150 and it is overdue by more than 60 days, it could be listed on your credit report as a default and can remain there for five years.

When applying for a loan or a form of credit of any kind, the credit provider, may look at your credit report and will be able to see that you have previously not paid a bill. In that situation, they may decline your application for credit.

That might mean you can’t get something as simple as a new phone plan or Internet service. Or more importantly, a default could harm your ability to get a home loan when the time comes – which is a significant issue.

The simplest way to avoid a default on your credit report is to simply pay your bills on time, but we understand that this might not always be possible. Fortunately, there are things you can do to fix a default should it happen to you.
Repairing Your Credit

The first thing you can do to start the credit repair process is by better understanding what your credit report looks like.

You can obtain a copy of your credit report directly from the credit bureau or from a third-party provider. You are entitled to one free copy of the report per year, which should be all you need to start the process.

The next step is to identify the black marks that are causing the issues. Sometimes these could be a mistake, so that’s something that you will need to clarify.

There are a few different types of black marks that can appear on your credit report.

  • Missed payments – these might be as simple as forgetting to pay a debt on time when it falls due. So, if you missed a credit card payment, for example, it will show up here and be on your credit report for two years.

  • Defaults – if you fail to pay a bill and the amount is equal to or greater than $150, after 60 days it can be listed as a default on your credit report. This will stay on your report for five years.

  • Serious Credit Infringements – if you have fallen behind, failed to update your address and the provider has tried to contact you for 6 months or more and has been unsuccessful, this is considered quite serious and is on your report for seven years. If you pay the debt it will revert back to a default and stay on your report for five years.

  • Court Judgement – if you’ve been summoned to court over an outstanding debt, and had judgment entered against you, this is shown on your report for five years.

  • Bankruptcy – if you’ve been declared bankrupt by a court, this will be on your report for the longer of five years from your date of bankruptcy or two years after the date of discharge.

  • Credit enquiries – it’s important to note that when you apply for credit at any time, that enquiry alone goes on your report. The more you apply for credit, the lower your overall credit rating (commonly known as your credit score) becomes. Credit providers assume that you are applying for credit and being rejected because of your poor record and will assume the worst. Therefore, it’s critical to avoid multiple credit enquiries to help keep a strong credit record.

Defaults listed on your credit report can only be removed if they are incorrect or after the length of time has passed as outlined above.

You can seek to remove incorrect listings yourself by contacting the credit bureau directly or through a third-party, such as a credit repair agency or lawyer that specialises in credit repair.

If the default on your credit report is legitimate, the best option is to understand how long it will be listed there, and to pay it in full or enter into a payment arrangement with the credit provider. If you do need to apply for credit while you have a black mark on your credit report, there are lenders that may be able to assist such as Finance One, which specialises in providing loans for people with challenging or no credit history.

 

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

Article by: Ronan McGowan

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