Default

Defaults can arise in two ways.

First, for regulated credit agreements, a default may be the result of failing to respond to a Notice of Default issued under section 87 the Consumer Credit Act 1974.

Second, for credit agreements that are not regulated under the act, (e.g. mortgages) a default on a credit file simply reflects the fact that the lender considers the relationship between itself and a borrower to have broken down.

In the first case, the Notice of Default gives the customer 14 days to remedy the breach of the agreement specified in it - typically payments in arrears. A default notice should be the final letter in the ‘cycle’ before taking action. The default date, as reported to the credit reference agencies is the date specified in the Default Notice, which the customer was told to remedy the breach by. The account goes into default once the breach is not remedied in the specified time.

The lender must allow 14 days from service before taking subsequent court action. Most courts expect 19 days overall due to post delays, weekends and public holidays. Upon default, you cease being a customer, but become a debtor.

In the case of non-regulated credit agreements, each lender defines under what circumstances it considers that an account is in default in the standard terms and conditions provided when the accout was opened. Non-regulated credit agreement lenders are required to give the customer 28 days to remedy a breach before the account is recorded as being in default at a credit reference agency.

Whichever way a default occurs, upon default, you cease being a customer, and as far as a lender is concerned, you become a debtor.

It follows that defaulted accounts are regarded as serious arrears and will remain on your credit report for six years from the date of default, after which they will automatically be removed.

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