If you’ve ever faced financial difficulties that resulted in a default on your credit history, you’re not alone. Many people in the UK find themselves in a similar situation at some point. The good news is that while a default can impact your credit score, there are steps you can take to improve your credit profile and even remove the default under certain circumstances.
In this article, we’ll walk you through the process of dealing with a default on your credit history, explain what a default is, and provide practical advice on how to improve your credit score.
What is a Default?
A default occurs when you fail to meet the agreed payment terms on a credit account, such as a loan, credit card, or utility bill. Typically, this happens after several missed payments, usually around three to six months of non-payment. When a creditor issues a default notice, it means they’ve closed your account because you haven’t met the repayment terms.
A default can remain on your credit report for six years from the date it was recorded. During this period, it can significantly affect your ability to obtain new credit, such as loans, mortgages, or even mobile phone contracts. However, there are ways to address the situation and potentially improve your credit standing.
Step 1: Understand Your Credit Report
The first step in dealing with a default is to understand your credit report. You can access your credit report for free from major credit reference agencies like Experian or Equifax. It’s essential to review your report regularly to ensure that all the information is accurate and up-to-date.
When reviewing your credit report, look for:
The defaulted account: Verify the details of the defaulted account, including the amount owed, the date of the default, and the creditor’s information.
Incorrect information: Check for any errors or inaccuracies in your report. If you find any, you can challenge them with the credit reference agency.
Other factors: Take note of any other factors that may be affecting your credit score, such as late payments, payday loans or high credit utilisation.
Step 2: Challenge Inaccuracies
If you find inaccuracies in your credit report, such as a default that you believe is incorrect or has been recorded unfairly, you have the right to challenge it. Here’s how:
- Contact the Credit Reference Agency: Begin by contacting the credit reference agency that holds the incorrect information. Provide them with details of the error and any supporting evidence you have.
- Contact the Creditor: It’s also a good idea to reach out to the creditor directly. They may be able to correct the mistake and inform the credit reference agency of the changes.
- Lodge a Formal Complaint: If the issue isn’t resolved, you can escalate the matter by lodging a formal complaint with the Financial Ombudsman Service, which can mediate between you and the creditor.
If the default is removed, your credit score should improve, and your report will no longer show the defaulted account.
Step 3: Repay the Debt
If the default is accurate, the best course of action is to repay the outstanding debt. While paying off the debt won’t remove the default from your credit report immediately, it will show future lenders that you’ve taken responsibility for your financial obligations.
Once the debt is settled, the account will be marked as ‘satisfied’ on your credit report. Although the default will still remain on your report for the remainder of the six years, having it marked as satisfied is better for your credit score than leaving it unpaid.
Step 4: Negotiate with the Creditor
In some cases, you may be able to negotiate with the creditor to remove the default from your credit report as part of a settlement agreement. This is known as a ‘goodwill deletion’. While creditors are not obligated to agree to this, it’s worth asking if you can reach an amicable resolution.
When negotiating with your creditor:
Be polite and professional: Explain your situation and ask if they would consider removing the default as a gesture of goodwill.
Offer a full or partial payment: If you can afford to pay the debt in full or a significant portion of it, use this as leverage in your negotiations.
Get the agreement in writing: If the creditor agrees to remove the default, ensure you get this in writing before making any payments.
Step 5: Improve Your Overall Credit Profile
While waiting for the default to drop off your credit report, you can take steps to improve your overall credit profile:
Pay bills on time: Make sure you pay all your bills, including utilities, rent, and credit accounts, on time.
Reduce your credit utilisation: Keep your credit card balances low relative to your credit limits. Ideally, aim to use less than 30% of your available credit.
Avoid applying for too much credit: Multiple credit applications in a short period can harm your credit score. Be selective about when and where you apply for credit.
Step 6: Monitor Your Progress
Finally, keep track of your progress by regularly checking your credit report. Many credit reference agencies offer free tools and services that allow you to monitor changes to your credit score and receive alerts about any significant updates.
Final Thoughts
Dealing with a default on your credit history can be challenging, but it’s not the end of the road. By understanding your credit report, addressing any inaccuracies, repaying your debts, and improving your overall credit profile, you can take control of your financial future. Remember, credit history is just that—history. With time, effort, and responsible financial behaviour, you can move past a default and work towards a healthier credit score.
Have you defaulted on a payment in the past and need help with a mortgage application? Why not speak to one of our friendly advisors who would be happy to have a chat and help guide you through it all.
If you have any questions about the process of applying for a mortgage, or you’re ready to move forward with an AIP (we can usually do this for you within 30 minutes) or mortgage application, give us a call on 01527 222 694.