What should the default date for a debt be?

A default badly damages your credit score, so how long will it be there?  In Britain, the credit record rules say:

the debt, including the default, is deleted from your credit record six years later after the first default.

An example: a debt with a default date in May 2014 will drop off your record in May 2020.

There are no exceptions to this rule. A debt which is marked as defaulted will disappear after six years in all the following situations:

1. you have repaid the debt in full;
2. you have made a partial settlement;
3. you are still making monthly payments to it; or
4. you haven’t made any payment to it for years.

The default date is very important!

The longer ago the default date the better because it will disappear sooner.

The default date should be the same on all three credit reference agencies but it’s good to make sure, see How to check your credit records which explains how you can check all three credit reference agency record for free.

This article looks at what the default date should be. If you can get a creditor to change a default date from June 2015 to April 2013, the debt will disappear more than two years earlier.

When should a default be added to a credit record?

The Information Commissioner’s Office (ICO) says :

“As a general guide, [a default may be recorded] when you are 3 months in arrears, and normally by the time you are 6 months in arrears.

There are exceptions to this which may result in a default being recorded at a later stage, such as secured or long term loans e.g. mortgages, or if the product operates in a more flexible way e.g. current accounts, student loans, home credit.

So those are the main guidelines, but let’s look at specific situations.

Debt management plans and arrangements to pay

For situations where you miss a few payments, or make reduced payments, or enter a Debt Management Plan, the “3-6 months” guidance above applies.

If your arrears have already reached three months, then the lender can register a default, even if an arrangement to pay is then agreed or you pay the debt in full.

Arrears will usually continue to mount up when you have an arrangement to pay or a DMP, so later a default can be added even if you are making all the payments.

At the start of a DMP or an arrangement to pay you may not want a default – they do harm your credit score! But if you aren’t going to repay the debt in a few years, having a default is usually better because your credit score will clear up sooner. With no default date added, the record will stay until 6 years from the date the debt is finally settled which could be a long while.

So it can often be better to have a default early in a debt management plan rather than not have one – see this article on DMPs and Credit Ratings for some examples.

Overdrafts are more complicated

For most loans and credit cards the ICO 3-6 month provisions apply – the common exception is current accounts.

There is no regular or minimum monthly payment to an overdraft, so the concept of “3-6 months in arrears” doesn’t really exist. You may have abandoned an account with an overdraft and switched to using a different account, but unless you told the bank this and asked for an arrangement to repay it (for example in a debt management plan) the bank may not have been able to tell.

So default dates for overdrafts can often be later than you would think.

Debt sold to a debt collector

If a debt is sold to a debt collector, then the new creditor should use the same default date as the original creditor did. If the original creditor didn’t add a default, you can ask the original creditor to add one, then the debt collector will have to use that.

If the original creditor didn’t report to a credit reference agency at all (this is unusual) then the debt collector should apply the same ICO rule that the original creditor would have used.

CCJs

If you have had a CCJ registered for that debt, the default date must be earlier than the date of the CCJ. The CCJ stays for 6 years, so the debt disappears before the CCJ does.

Insolvency

If you have gone bankrupt, had an IVA or Debt Relief Order(DRO) then the default dates of the debts in your insolvency must not be later than the date the insolvency started. This is covered in detail in these articles:

• Repair your credit record after Bankruptcy;
• Repair your credit record after an IVA;
• Repair your credit record after a DRO.

Mortgages

Mortgages and other secured loans are an exception to the general “3-6 months in arrears” guidelines. In 2007 the ICO issued technical guidance on Filing Defaults With Credit Reference Agencies, see paragraph 14 for this specific area.

A mortgage lender has much more discretion on when to record a default, but it should generally not be later than six months after any repossession.

Only the first default date for a debt matters

When people talk about the default date for a debt, it is the first default date that matters.

Your credit file will normally show a default marker each month afterwards until the debt is settled. That looks bad, but in the credit scoring it is only counted as one default.

The whole debt will disappear six years after the first default.

What can you do if a default date looks wrong?

For some examples of how these principles have been applied in practice, see these case studies that the Financial Ombudsman has reported. They should give you a better feel for whether you can get your credit record changed.

To correct a problem with a default on your credit file you should write/email the lender (or the debt collection agency if your debt has been sold by the original lender), putting COMPLAINT as the subject, explaining why you think it is wrong.

Don’t just copy out the guidance above, add the facts and dates which relate to your specific case. Some common examples would be:

• “I first missed payments to this debt in early 2013 and set up an arrangement to pay in June 2013”,
• “I never received the December 2014 bill as I had moved house”,
• “I only made token payments from 2012” etc.

Then say what you think should happen to your credit record, do you want it deleted, added, or changed to be earlier? For example:

• “Please delete the default date because I was never three months in arrears according to the ICO rules.”
• “You never contacted me to say the account was in arrears so it is unreasonable to have added a default. I had later accounts with you so you knew my contact details. I paid the debt as soon as I found out about it.”
• “I would like you to add a default date in November 2012 in accordance with the ICO rules.”
• “According to the ICO rules the default date of September 2015 is too late and I would like you to change it to May 2012.”
• “[name of original lender] added a default in 2010, this has since dropped off my credit record. You should be using that same date, so please correct it.”

The credit reference agencies only report what they are told by the creditors, so complain to the creditor not Experian etc.

If you haven’t had your complaint to the lender sorted within 8 weeks, put in a complaint to the Financial Ombudsman.

Stop and think – will doing this “reset the clock”?

If you haven’t made any payments to a debt for years and you are hoping it will get to the 6 years point so the debt is statute barred, it is probably best not to contact the lender at all.  If you ask them to change the date then this will acknowledge the debt and “reset the clock”. See Questions about Statute-barred debt for more information as the conditions for some debts becoming statute-barred have changed in January 2019.

But also read No calls all letters about a debt for years? Is very common for you to be contacted about an old debt just a few months before it reaches the 6-year statute barred point. So unless this is very close, it’s probably not worth hoping this will happen and it’s better to get the default date sorted.

If the debt is already statute barred (are you absolutely sure? read the above article) then you can safely ask for the default date to be changed as once a debt is statute barred it will always remain barred.

And sometimes a default is good news!

Defaults sound bad, right? So getting one removed must be good? This is probably the most confusing thing of all, but No!

It can often be better to have a default on your credit record.  If there is a default against a debt, then the whole debt will “drop off” your file after six years, even if you haven’t repaid the debt. With no default, the record will not go away until six years after it is marked as settled/satisfied in some way.

So don’t rush into trying to get a default removed… and never try to get a default date changed to a later one because it will wreck your credit record for longer!

Remember: your credit record isn’t the only thing that matters

You may wonder why you should pay a debt at all if it will go from your credit record after 6 years if you don’t pay it. There are two good reasons:

• it stops the creditor going to court for a CCJ, which would harm your credit record for another 6 years
• seeing that problem debt is settled makes other lenders more likely to give you credit.

Even though it’s good for your credit score when defaults disappear, the debts still legally exist. See Do I have to pay a debt that isn’t on my credit record? for more details.

Don’t get confused with “Default Notices”

This article has looked at when a creditor marks your debt as “in default” with one of the credit reference agencies. The word “default” is also used in the term “Default Notice”. A lender has to send you a Default Notice before taking you to court over an unpaid debt. This has nothing to do with informing a credit reference agency that your debt is in default – your credit file may be marked as in default even if the creditor has no intention of taking court action.

If you have read things like the lender has to send you a Default Notice 14 days before starting court action and if you pay the debt in full within this time the lender can’t go to court these aren’t referring to credit records at all.  Anywhere you read the phrase Default Notice you are probably looking at information about CCJs, not credit records.

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