What is a default?

When it comes to managing finances, keeping up with loan repayments and bills is crucial to maintaining a healthy credit score. However, life happens, and there may be times when you find yourself falling behind on payments.

In the UK, if you fail to make payments on loans or bills for an extended period, you may face what’s known as a default. But what is a default exactly, and how does it impact your financial future?

In this guide, we'll explain everything you need to know about defaults, how they affect your credit score, and the steps you can take to minimise the damage.

What does default mean?

A default occurs when you've missed payments on a debt, such as a loan, credit card or utility bill, for an extended period. If you're more than three to six months behind on your payments, they can issue a default notice. This means that your account is considered seriously overdue and may possibly be passed on to a debt collection agency.

What is a default on a credit file?

When a default happens, it doesn’t just signal an overdue payment to the creditor; it’s also reported to the UK’s credit reference agencies (Experian, Equifax, and TransUnion), and this information appears on your credit file.

Simply put, it's a mark that shows a lender that you haven’t been able to meet your debt obligations, which can negatively impact your creditworthiness in future.

Having a default on your credit score can definitely be a contributing factor to having ‘bad credit’, and unfortunately make it harder to take out credit products in future.

But if you have issues with your credit and need cash to help cover you in an emergency, Moneyboat might be able to help. We consider applications for short-term loans even if you’ve got bad credit. If in doubt, just get in touch with our friendly and knowledgeable shipmates over in our customer service team, and they can see if Moneyboat can help.

How long does a default stay on your credit file?

First of all, it’s true that a default can have a severe impact on your credit score for a long time. But exactly how long does a default stay on your credit file? Well, in the UK, a default will remain on your credit file for six years from the date it was registered.

During this time, it will be visible to any future lenders or companies conducting a credit check, significantly reducing your chances of being approved for new credit products or loans.

Defaults are considered red flags by lenders. When reviewing a credit application, the presence of a default suggests that you’ve struggled to manage previous debts, which makes you a riskier prospect for future borrowing. As a result, your borrowing options may become more limited, and if you are offered credit, it may come with higher interest rates to offset the perceived risk.

How long does a default last?

It’s important to note that although a default affects your credit score for six years, the impact can lessen over time, especially if you manage your finances responsibly after the default is recorded. Settling the debt as soon as possible is one of the most effective ways to start repairing your credit score.

But it’s not all doom and gloom – there are things you can do to help lessen the impact of a default on your credit score.

How to get a default removed

A common query many people have is how to get a default removed from their credit file. In most cases, defaults can’t be removed until the six-year period has passed. However, there are certain situations where you might be able to get a default removed earlier.

• Settle the debt: Although settling the debt won’t remove the default immediately, it will be marked as "satisfied" on your credit file. This shows future lenders that you've cleared the debt, which could improve your chances of being approved for credit. It won’t remove the default entirely, but it can make a positive difference in how lenders view your credit history.

• Negotiate with the creditor: If the default was recorded in error or if you paid off the debt before the default was issued, you may be able to request that the creditor removes the default from your credit file. Contact the creditor directly to discuss the possibility of having the default removed.

• Challenge inaccuracies: If you believe the default was recorded incorrectly, whether it's the amount, the date, or any other details, you can dispute the default with the credit reference agencies. They will investigate your claim and, if successful, the default may be removed from your credit report.

Whilst these steps can potentially lead to the removal of a default, it's crucial to maintain a record of timely payments moving forward to avoid further damage to your credit score.

If you find that you’re struggling with debt, then take at our guide to breathing space and debt to see how you can find additional support and take steps to get help and advice.

Can you get a mortgage with a default?

Many people wonder, can you get a mortgage with a default? The short answer is yes, but it may be more challenging. Mortgage lenders tend to be more cautious when lending to individuals with a history of defaults because it suggests a higher risk of non-repayment.

However, having a default on your credit file doesn’t make it impossible to get a mortgage – it just makes it harder. You may need to approach specialist mortgage lenders who are more open to working with individuals with adverse credit histories. Be prepared for higher interest rates and possibly needing a larger deposit to offset the risk.

The key to securing a mortgage after a default is to demonstrate responsible financial management since the default was registered. Lenders will look at your credit behaviour in the months and years following the default, so keeping up with current credit commitments is essential.

Protecting your credit score after a default

Once you’ve experienced a default, it’s vital to focus on repairing and protecting your credit score. Here are some strategies to help:

• Make on-time payments: Ensure that you meet all your current credit commitments. Late payments will only worsen your credit score, so prioritise paying bills and loans on time.

• Limit new credit applications: Applying for multiple lines of credit in a short period can harm your credit score. Be selective about the credit products you apply for, and focus on securing only what you need.

• Use credit wisely: Keep your credit utilisation low (ideally under 30% of your total credit limit). This shows lenders that you can manage your credit responsibly.

• Monitor your credit file: Regularly checking your credit report allows you to track your progress and ensure that all information is accurate. If you spot any errors, take action to have them corrected.

Are credit repair services worth it?

There are companies that offer credit repair services, claiming to help remove negative information, such as defaults, from your credit file. Whilst these services may seem appealing, it’s essential to approach them with caution. Many services can’t do anything that you can’t do yourself through simple steps like disputing errors and maintaining good financial habits.

Before paying for a credit repair service, carry out thorough research to ensure the company is legitimate. Be wary of companies that promise to remove accurate information, such as a legitimate default, as this is generally not possible.

A default is a serious financial event that can hurt your credit score for up to six years, making borrowing more expensive and difficult.

However, by settling the debt, negotiating with creditors, and maintaining good financial habits, you can begin to repair your credit score over time. Just remember, preventing future defaults by making on-time payments and managing your finances responsibly is the key to long-term financial health.

For more insights, dive into our blog and read our credit check guide. We also recommend reading our article Do credit repair services really work?