CREDIT RATINGS are a tool used by lenders to confirm your identity and decide whether you are a reliable borrower or not. But how long do defaults stay on your credit report?
Credit ratings provide an indication of how a typical lender would assess you. When you apply for credit such as a mortgage a lender tries to predict your future behaviour based on the way you have acted on the past. But if you have defaulted on payments in the past, how long do these stay on your credit report?
What is a credit rating?
Credit ratings are often used when you apply for mortgages, credit cards and loans, but in recent years they can also impact phone contracts, monthly car insurance, bank accounts and more.
When you make an application for credit, a lender will endeavour to predict your reliability with making repayments based on your past behaviour.
To do this, they look at lots of different data, including how many applications you have made, how much you owe, what credit products you have and whether you have paid them off all on time.
What is a default on your credit score?
A default occurs when a lender decides to close your account because you have missed payments.
It can happen with an account you have with a bank, mobile phone company or utility supplier.
Defaults can occur regardless of how much money you owe, whether it is a few pounds of a few thousand pounds.
Typically it will happen if you have been missing payments for three to six months, depending on the lender’s terms and conditions.
How long do defaults stay on your credit report?
Defaults stay on your credit report for six years regardless of whether or not you pay off the debt.
But once those six years have passed, the default is removed and the lender will not be able to re-register it, even if you still owe money to them.
You should continue to meet any remaining payments as the lender could go on to register a CCJ against you.
Your lender may also sell your debt to a debt collector, but the lender must make this obvious on your credit report so it will not look like you have two defaults.
Can you get credit such as a mortgage if you have a default?
A default will negatively affect your ability to borrow money.
When you make an application for credit, lenders will check your credit score to decide how likely to are to repay them.
A default is a sign of poor credit history and shows lenders you have struggled to repay credit in the past which means you may struggle to get approved.
However, it is still possible to borrow money with a default on your record.
If you are looking for credit you could consider options designed for people with bad credit history, which usually have high-interest rates and low limits.
But you should be sure you can afford the monthly repayments before considering these options.
How to reduce the negative impact of a default only our credit score
Once a default is on your credit report you cannot have it removed before the six years have ended.
However, you reduce its impact on your credit rating in the following ways:
Repayment: You should try to repay what you owe as soon as possible as once you have achieved this the default will be marked as satisfied on your credit report.
Explanation: You could consider asking to add a note to your credit report to help lenders understand why you got into debt such as a long-term illness.
Time: The longer you have a default the less it matters to lenders, so after a few years you may find it substantially easier to get approved for credit again. Defaults in the previous 12 months will hurt you the most.
Can you remove or update a default on your credit report?
You can ask for an inaccurate default record to be updated or removed by raising a credit report dispute.
If the default is genuine and fair your options are limited, but if you discover an unfair default on your credit report, you can dispute it as it will block most applications.
Unfair defaults can happen for a number of reasons such as a simple clerical error by the credit reference agency.
More likely a lender has put it there in error or you were in dispute with the company over whether or not you owed money to them.