When you take out a loan, it’s important to stick to the terms of your agreement and inform your lender if your circumstances change and you’re no longer able to make payments as agreed.
One of the more serious consequences of missing payments on a loan is being issued with a default. But what exactly is a default and can it be revoked if you make up for the money owed?
What is a default?
Before delving into how to get a default removed from your credit history, it’s important to understand exactly what a default is and why you have been issued with one.
Put simply, a default is a negative marker added to your credit file when you miss repayments on a loan (typically three or more) and the lender closes your account as a result.
The implications of having a default on your credit record can be serious and long-lasting, so it’s best to avoid getting one wherever possible. Even if you can’t afford your monthly payments, you may be able to come to an agreement on how to pay the debt by reaching out to your lender.
Furthermore, it’s important to note that while missed payments always carry a risk of defaulting, you shouldn’t be issued with a default after just one missed payment. Most lenders give you a grace period of between three to six months to make up for the money owed.
How much debt do you have?
How does a default work?
Usually, you’ll be informed that you’ve defaulted on a credit agreement when you receive a ‘default notice’ or ‘notice of default’ in the post. This can be unsettling and it’s normal to fear the worst, but you shouldn’t worry too much.
Firstly, a default notice doesn’t automatically mean that the default has been added to your account and you’ll still have an opportunity to make up for the money owed. The default notice will, however, only give you 14 days to make up for the arrears before a default is issued.
Some people respond to a default notice by ignoring it and hoping it goes away, but this is only likely to lead to further legal action being taken against you, such as a County Court Judgment (CCJ), which is a legal decision from the court ordering you to repay a debt.
There is no minimum debt level or amount of missed payments required for a default but it can only be issued if the debt in question is regulated by the Consumer Credit Act (1974). This means you can receive a default for unpaid payday loans, personal loans, bank loans, utility bills, catalogue debts, car finance agreements, and mortgage arrears.
How should I respond to a default notice?
The sooner you respond to a default notice, the better. From the date you receive a default notice in the post, you’ll only have 14 days to stop a default from being added to your credit report for the next six years.
Here is what you should do when you receive a default notice:
Don’t panic
The most important thing to remember when you receive a default notice is not to panic. Most lenders will be willing to come to an agreement with you on how to repay the debt and you will have up to two weeks from the day you receive the default notice to decide how to respond.
Review the default notice
Next, you must carefully review the default notice to ensure all the information listed, including your name, address, and debt level, is correct. Missing this step could lead to you paying someone else’s debt or more than you owe which, although extremely rare, can still happen.
Contact your lender
Once you have reviewed the default notice and confirmed everything is correct, you should contact your lender to discuss your next steps. Even if you don’t believe you owe the debt, ignoring the default notice will mean you miss your window for disputing it and a default will be issued.
Negotiate repayment terms
The default notice will usually demand full payment of the debt, but your lender may be willing to meet you in the middle – especially if it means they’ll receive partial payment instead of nothing. Failure to come to an agreement can result in the lender taking possession of an asset related to the debt, such as a vehicle.
“No fuss, just simple, honest advice. Communication is good and they make the process as easy as they can.”
How long does a default stay on my credit file?
Once a default has been added to your credit report, it will stay there for six years. During this time, lenders will be able to see you have a history of non-payment and may be reluctant to give you credit.
The good news is, once the default has been removed after six years, it can never be re-registered – even if you still owe money towards the debt.
However, this doesn’t mean that you should just ignore the debt and wait for it to be removed as your lender could still take you to court and issue a CCJ against you or sell the debt to a debt collector during this time.
By paying the debt, it will be marked as ‘satisfied’ on your credit file, boosting your credit rating and making it easier to access further credit. This can be checked by requesting a free copy of your credit report from any of the main credit reference agencies (Experian, Equifax, and TransUnion).
Will a default be removed if paid?
Unfortunately, a default will stay on your credit file for six years from the date it’s added regardless of whether it’s paid or not.
This is why it’s so important to reach out to your lender to try to come to an agreement within 14 days of receiving a default notice or, if possible, before a default notice is issued.
However, while paying the defaulted debt won’t get it removed, there are some circumstances where you may be able to get a default removed from your credit file.
Is it possible to get a default removed from your credit file?
Getting a default removed from your credit file only happens on rare occasions, but it’s certainly not impossible. We’ve outlined the situations in which you may be able to get a default removed below:
It was issued in error
Because of the long-term impact it can have on your credit score, it’s rare that a default will be sent to the wrong person. However, if you have been issued a default in error, you have every right to request for it to be revoked.
Some of the instances in which you can ask for it to be removed are if you’ve already repaid the debt in full, the default notice was sent to you instead of someone else, or you’re not in arrears by at least three months.
Enough time has passed since you missed payments
Defaults stay on your credit file for six years before they are automatically removed – regardless of whether they have been paid or not.
Therefore, if the default was added to your credit report much later than it should have been, you may be able to get it removed before the six-year term is up.
How do I get a default removed from my credit file?
The only way to get a default removed from your credit file is to raise a ‘credit report dispute’ with the relevant credit reference agency. When you do this, you should be prepared to provide evidence to support your claim, such as bank statements or credit card statements.
The credit reference agency will then contact the lender who issued the default and request that it be removed.
During this process, a ‘notice of correction’ will be added to your credit file to show lenders that the default is being investigated and may be removed shortly.
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How can I avoid defaulting on future credit agreements?
When it comes to defaults, it’s much easier to avoid getting one in the first place than try to get it removed. This can be easier if you know what to avoid. We’ve provided some top tips for avoiding a default below:
Understand your credit agreement
Some credit agreements contain a clause stating how many missed payments will result in a default.
By familiarising yourself with this information, you can know when to expect a default and take action to avoid it.
Limit credit applications
The key to managing your repayments and avoiding a default is to keep your credit agreements to a minimum and only borrow money if you absolutely need to.
The fewer monthly payments and creditors you have to worry about, the more control you’ll have over your finances.
Seek help with repayments
Before you accumulate three months of missed payments, it’s important to reach out to your lender to let them know that your circumstances have changed.
They may be willing to come to an agreement with you over how to repay the debt and, more importantly, delay issuing you with a default.
Maintain a budget
Sticking to a budget is the only way to ensure you’re spending within your means and setting aside enough money for debt repayment each month.
Remember to take all of your expenses into account when creating a budget and review it regularly or when your circumstances change.
Consider a debt solution
Before your debt gets to the default stage, consider taking out a debt solution, such as a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA), to help you lower your monthly payments.
Reach out to a financial adviser or debt management company to discuss your options for getting out of debt.
Conclusion
Once a default has been added to your credit file, it will stay there for six years regardless of whether you pay it fully, partially, or not at all during that time.
The only times you’ll be able to get a default removed before six years is if it was issued in error or it was added later than it should have been and you’ll require sufficient proof.
Remember, a default can have a negative impact on your credit history and it’s always better to avoid getting one than trying to get one removed.
