Summary
If you don’t pay your credit card, loan, mortgage, utilities, bills, phone bills etc., then the relevant provider may list this non-payment on your credit file, also known as a default. They may also record when your repayments are made late.
Top tips to try and help you avoid defaults:
- Check your bank account regularly to ensure that your direct debits are coming out on the right day and for the right amount, in accordance with the agreement you have with your provider.
- Consider having a dedicated bank account for your bills that always has a surplus balance, to ensure you don’t have any dishonoured payments.
- If your repayments are not direct debits, try to set up automatic transfers so that you don’t have to remember to make the payments manually.
- Make sure that your contact details are always up to date with your provider, including your phone number, email and address.
What to do if you have a default on your credit file:
- You can talk to the provider who listed the default and try to negotiate a mutually agreeable repayment arrangement that you are able to afford.
- If you can pay off your default in full, this should allow the status of your default to be updated to ‘paid’ on your credit report.
- If a default was listed on your credit file in error, there are steps you can go through to try and get this removed. To begin with, you will need to contact the provider to discuss the mistake.
Having a default on your credit file can limit your loan options, but you may have alternative options. Finance One endeavour to help people who are unable to obtain finance through other lenders and avenues due to their credit file and other reasons.
Read on to find out more about how to avoid defaults:
What is a default?
Any overdue debt of more than $149 that’s been outstanding for 60 or more days is classified as a default in Australia and can be listed on your credit file after the proper notice has been given. This includes overdue loan and credit card payments, telco bills and utility bills that fit the criteria.
For a creditor to list a default on your credit file, they are required to send a payment request, in writing, to your last known address. This must be done twice on consumer matters before the default can be listed with the credit bureau.
Does a default on a loan impact my credit score?
A single default has the potential to lower your credit score significantly and can make it much harder to get approval for loans or credit terms in the future. Once recorded, the default stays on your credit report for five years.
Regardless of whether or not you pay the money back, the default remains. Lenders extend credit to customers with the expectation that it will be repaid on time and in accordance with the loan agreement. When you fail to make your repayments in accordance with the terms of your credit contract, it can be a huge inconvenience for the lender, and so they may seek to avoid lending money to someone with defaults listed on their credit file.
What can I do if a loan default has been listed on my credit file?
Pay any outstanding debt
Make the payment of any outstanding debt or default as soon as possible. The default will not be removed from your credit report, but the status of the listing should be updated to show the debt has been paid, and for anyone looking at your credit file, this tends to look much better than if the debt is left unpaid. It may show potential lenders that you can take responsibility for outstanding amounts, even if it was paid late. Repaying outstanding debt can also mean you may avoid winding up in court!
Check the default is correct
You can find your credit report online to check that everything listed is correct. Be sure to check the terms and conditions of requesting a copy of your credit file first before doing so. Sometimes, mistakes in your credit file can appear over the years, so it’s definitely worth checking. If you find errors on your credit report, get in touch with the credit provider or reporting body so they can look into correcting it.
Wait it out
If the default is legitimate and there were no errors in listing it, there’s nothing you can do to remove it except to wait for the five years to elapse. During this time, making an effort to pay bills and repayments on time and in accordance with the terms of your contracts may help to strengthen your credit score.
How to avoid defaults
Defaults can have a huge negative impact on your credit rating and reduce your chances of being approved for credit in the future, so it’s important to avoid them occurring.
Always pay on time
By paying your bills and credit repayments on time and in accordance with the terms of your contracts, you’ll likely be able to strengthen your credit rating and ensure no defaults occur. Setting up automatic payments or direct debit payments can help you meet repayment dates.
Manage your finances effectively and well
Most often, when people default on a loan, it’s not because they want to, but it happens because they haven’t effectively managed their finances. Preparing a budget to monitor your income, expenses and the timing of your cash flow can help you keep on top of all your financial commitments.
Update your contact details
For a default to be recorded on your credit report, the credit provider must send two separate letters requesting payment to your last known address. If you haven’t updated your address with your lender, you may not ever receive these payment requests. Your lender is only required to send the letters to the address on their records; they’re not necessarily responsible for you actually receiving them — this part is up to you. That is why it’s important to make sure your lender and any of your other creditors have your correct and current address at all times.
Negotiate payment terms
If you know you’re not going to be able to pay a debt before it’s 60 days overdue, you may like to get in contact with the service or credit provider to advise them of this, and discuss your situation further. Often, if you are experiencing financial hardship or simply can’t get your hands on the money in time, they’ll be more than happy to offer an extension on the due date or temporarily negotiate the payment terms in some way. It may therefore even be possible to negotiate a temporary payment plan. It’s always a smart idea to contact your lender or any of your other service and credit providers as soon as possible and before you get further in debt.
Act fast
If you happen to receive a notice from your lender that your payments are overdue, you need to act fast to clear any outstanding arrears or make any overdue payments. The first notice will be sent to you when the default becomes overdue. 30 days later, the lender may send your second notice. Once the second notice has been issued, you will likely have 14 days before the lender lists the default on your credit file.
Can I apply for a loan if I have defaults?
Nothing is stopping you from applying for a loan. However, caution may need to be taken regarding who you apply with. When you apply for a loan, the lender often undertakes a hard enquiry on your credit file. If they find that you have defaults recorded, there’s a chance your application will be rejected. While one hard enquiry on your credit report isn’t necessarily the end of the world, if you have multiple enquiries over a short period of time, you are more likely to keep getting rejected, and your credit rating will likely be impacted by an increasing number of enquiries on your credit file.
Many lenders will not be interested in offering finance to you if you have defaults or an excessive amount of credit enquiries. This is because they generally view borrowers with defaults or a bad credit score as high risk.
Need a loan, but have defaults? Finance One may be able to help!
At Finance One, we understand that things can sometimes get in the way of keeping up with payments. We don’t judge people based on their past. Instead, we work with them to try and provide financial opportunities for their future. Defaults on a loan or a bad credit rating don’t need to mean the end of your finance journey.
If you want a vehicle loan, personal loan or business loan, get in touch to find out how Finance One may be able to help.
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.
