How Your Credit Score is Affected When a Default Drops Off

Posted by Richard Catlin in Dealing with Debt on 4 January 2018 - Richard is Marketing Director at checkmyfile.

If you’ve got one default, you might be counting down the days until it is no longer reported to the Credit Reference Agencies. But if you have more than one, will you see your Credit Score rise as each one drops off of your Credit Report?

Defaults are reported to the Credit Reference Agencies for six years from date of default. This date is recorded on your Credit Report, so can see the date that it is set to be removed – it’s worth making a note of these, although the agencies do have an additional 28 day administration period to remove them.

How changing circumstances can lead to defaults

Defaults often occur during a specific period of your life - if you were made redundant, or became ill and had difficulty repaying existing debt, for example. In these cases, there can be a fairly short time span between default dates, which means that 6 years later all adverse Credit History is removed from your Credit Report in the space of a few months.

While this situation can be a tedious waiting game over a number of months, those with a number of defaults spanning a much longer time period will often be left wondering if the removal of one default will have a positive impact. So, will the removal of one default help your Credit Score?

Does your score go up when a default is removed?

If you have a number of defaults spreading over a period of time, it will be rare to see an improvement in your score when one drops off. If you put yourself in the position of a lender, they are still able to see that you have been unable to meet the conditions of these credit agreements, and are therefore still “high risk” in lending terms.

Put simply, removing one default from your credit report won’t make much of a difference if you have additional defaults remaining. Only when all negative markers on your credit file have been removed will you begin to see any real improvement in your credit score.

There are, however, ways in which you can improve the state of your Credit Report, even when your score is not set to improve for some time. This is important if you are still looking to borrow, but also for when your Credit Report is clear of adverse information.

How to improve your score when you have a default

There are still lenders willing to lend to those with defaults - different lenders have different criteria to mark your Credit Report against. While mainstream lenders might consider the presence of defaults as too risky, there are specialist (sub-prime) lenders set up to cater for this end of the market. Making payments on time to these lenders can be a strong start in getting your credit score back to where it should be.

Take control of your monthly outgoings

Managing your credit accounts is key to moving forward - rather than worrying about one default dropping off, the focus should be on ensuring that all of your current payments are made like clockwork each month. This will show lenders that you now have a more responsible attitude towards borrowing.

Use credit building-cards

When looking to build up your Credit History, a ‘credit-building’ credit card can help to show that you are now a more responsible bet when it comes to lending. Simply pay any debt off in full every month to prevent yourself from incurring high interest charges, and it will demonstrate that you are able to manage your finances.

Tidy up your finances

When ‘tidying up’ your Credit Report, there is always a risk that an unpaid default can potentially lead to further court action by the lender or debt collector. If you know that the default is staying on your Credit Report anyway for the six year period, you may think “what’s the point of paying it?”

Try to settle any outstanding debts

Not only do some mainstream lenders lend to those with settled or older debts (which is particularly important if you are looking for something like a mortgage), but settling the debt also prevents continued chasing from debt collectors, or the possibility of further action being taken against you. If you have an unpaid default you may have heard of it being ‘statute barred’ after six years, when you are no longer required to pay the debt.

Does that mean my credit score will increase after six years?

Not necessarily. A lot of people will hold out for this statute barred date (six years from when acknowledgement of the debt was last made) in the hope that the debt will be written off, and they do not have to make any payments towards the debt.

Unfortunately this poses the risk that the debt collector will contact the Court a few months before the six year period expires, to apply for a County Court Judgment (CCJ). If this is granted, you will then be given one calendar month to pay the debt before the CCJ is added to your Credit Report, creating another six years of credit-related pain. While this isn’t always the case, a CCJ will have an ongoing impact long after the original default has disappeared.

Find out more about how court records appear on your checkmyfile report.

Original article posted by Kelly Luff, updated 04 January 2018 by Jamie Mackenzie Smith

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