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Credit card defaults increasing

Posted in 'Credit Reports' by Barry Stamp

12 March 2009

It’s surprising how easy it is to get a default on your credit report. It takes only a couple of phone calls to be missed, a statement to be unread, and the formal default letter to go unopened, and the first you’ll know about it is either when you receive a court summons, or unexpectedly get turned down for credit.

February and March are the seasonal peaks for the number of consumers defaulting on credit cards. Levels of default usually reach twice that which occurs in the trough months of June and July, and are usually caused by the delayed impact of putting the cost of Christmas on credit.

As unemployment levels get worse, and as consumers' ability to pay credit commitments weakens with the recession biting, default levels are expected to increase to an economic cycle high of around 5%, measured as the percentage of borrowers who are 60 days or more late on payments.

Most defaults can be avoided using the following tips:

Set up a direct debit to pay the minimum payment on each credit card. Then, if you can pay more, do so using the monthly statement.
If you miss a payment by mistake, ring the credit card company and make a payment by phone straight away. Don’t wait for the next statement to arrive.
If you move address, remember to tell your credit card companies promptly.
Always open your credit card statements and check them to make sure a payment has been made during the statement period.
If you are having difficulty making payments, phone the lender before they ring you. Most lenders know that it makes far more commercial sense to give you time to pay than to resort to court action.
If you do get a default notice or a court summons, pay up quickly (or at least as much as you can) and talk to the lender. Believe it or not, they don’t actually want to take you to court because it costs them too much, and you’ll also avoid a court judgment which is even more damaging to your credit standing.

You can also monitor your credit report online from just £4.85 per month using our Unlimited Access service. If any payment is missed, it’ll be reported as a payment status code of ‘1’ for the most recent month, which means the account is one month overdue. Most people have the odd missed payment on their credit files, that’s just human nature. But it’s also an early warning that more serious status codes will be recorded on your credit report if you don’t either make a payment or speak to the lender.

Click here for details of our value for money Unlimited Access credit report monitoring service.