One or two missed payments might not be too serious. These are referred to as ‘early delinquency’.
However, when you’ve reached between three and six missed payments, you may be declared in default.
Defaults are serious. Often a lender will automatically decline an application if there has been a default.
Importantly, defaults remain on a credit file for six years.
Even if the default happened a few years ago, some lenders still say ‘no’. Defaults can have a very negative impact on your credit score.
But what exactly is a default?
Creditors issuing a written ‘default notice’ do not record an immediate default on your file. Debtors receiving a default notice have at least two weeks to get an account back on track. Lenders issue defaults soon after these notices.
Additionally, if a creditor thinks the relationship with a borrower has broken down (e.g. they don’t answer letters or phone calls), they may register a default.
The Information Commissioners Office recommends a default is not registered until six consecutive payments have been missed.
However, short-term loans lasting under 36 months might have a default registered sooner. Consequently, a default can appear after just three consecutive missed payments.
Creditors may also record a default in the following circumstances:
- Repossession of your home
- Cutting off services, including gas and electricity
- Repossession of a vehicle
- You leave an address without telling a creditor
- Fraud is suspected
- Insolvency, including bankruptcy, Debt Relief Orders or Individual Voluntary Arrangements
Lenders must give you 28 days’ notice if they are going to register a default. However, in 4 – 5 (above) lenders can file a default as soon as they become aware of the situation.