There are many different things that can affect a person’s credit rating, from forgetting to make a credit card payment on time to being declared bankrupt. One thing that can have quite a substantial impact on a credit report is a default.
How Long Does a Default Stay on my Credit File?
What is a default?
If a series of consecutive payments on an account are not made, the lender may take the decision to close the account. When this happens, it is known as a default. The action is not triggered because a set number of payments have been missed; it can happen at any time. The catalyst to record a default is generally that the lender believes the relationship between it and the customer has broken down.
How long will a default stay on my credit file?
A default stays on a person’s credit file for six years from the date it is recorded, after which it is removed. Removal will take place irrespective of whether the debt has been settled.
A default will arguably have a lesser impact as the years pass, as most lenders will focus on more recent issues, but it is wise to assume that it will be an issue for the full six year period.
Why six years?
Possibly because that is the length of time County Court Judgments (CCJs) are kept on the register of court judgments, as CCJs form an element of a credit report. Bankruptcies also fit the six year rule: most are discharged after one year and then held on file for a further five.
An exception to the six year rule would be a bankruptcy order that had been made subject to a restrictions order; bankruptcy discharge can be extended up to fifteen years, and in that case it would stay on a credit file for the duration. (These occurrences are quite rare.)
What if payments were missed due to circumstances beyond my control?
If you missed payments for a good reason – for example, you lost your income due to redundancy, or you were self-employed and had an accident that prevented you from working – then contact the credit reference agency. They can add a note of correction to the file explaining the circumstances, which may well mitigate the effect of the default on future credit decisions. However, irrespective of the circumstances the default will still be noted and taken into consideration for any mortgage application.
If I do not clear the debt the default relates to, can the lender get it put back on my credit file after it drops off?
No – once it is gone, it is gone. However, if you were to complete a credit application that asked if you had any previous debt issues, you may still have to declare it and so it could still have an impact on a future credit decision. Do also note, that it may also be the case that if a “bad debt” is sold on ie to a debt recovery agent, the new owner of this debt could still submit a new default order which could again last for a further 6 years.