A default badly damages your credit score, so how long will it stay there?
That depends on what the default date is on your credit record.
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.
A debt that is marked as defaulted will be deleted after six years in all the following situations:
- you have repaid the debt in full;
- you have made a partial settlement;
- you are still making monthly payments to it; or
- you haven’t made any payment to it for years.
There are no exceptions to this rule. So a debt with a default date in May 2016 will drop off your credit record in May 2022.
This means that the longer ago a default date is, the better because it will disappear sooner.
If you can get a creditor to change a default date from June 2019 to April 2017, the debt will disappear more than two years earlier.
So this article looks at what the default date should be.
Contents
When should a default date be added to a credit record?
SCOR, the industry forum that handles credit reporting, says :
As a general guide, [a default] may occur 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.
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 – and defaults will be later
For most loans and credit cards the standard 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 or asked for an arrangement to repay it (for example in a debt management plan) or included the overdraft 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
When a debt is sold to a debt collector, the new creditor should use the same default date as the original creditor did.
If the original lender didn’t add a default, you can ask them to add one, then the debt collector will have to use that.
In the unusual case that the lender didn’t report to a credit reference agency at all, the debt collector should apply the same ICO rule that the original lender 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 will stay on your credit record for 6 years, so the original debt will have dropped off before the CCJ goes.
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 which tell you how to correct these problems after insolvency:
- 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
Once a debt has been marked as defaulted, your credit file will normally show a default marker every month until the debt is settled. That looks dreadful on your credit reports! But in the credit score calculations, it is only counted as one default.
So when people talk about “the default date for a debt”, it is the first default date that matters. Not the ones for later months. 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 2015 and set up an arrangement to pay in June 2015”,
- “I only made token payments from 2012”
- “This debt was included in my debt management plan with Stepchange in March 2017” 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 2015 in accordance with the ICO rules.”
- “According to the ICO rules the default date of September 2017 is too late and I would like you to change it to May 2014.”
- “the other creditors in my debt management plan added defaults in 2014, they have 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, send it to the Financial Ombudsman.
Here is an example of an Ombudsman decision telling Nationwide to backdate a default date.
Be careful – 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 default 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.
Important – 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!
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.
Your credit score improves when a defaulted debt disappears, but the debt still legally exist. See Do I have to pay a debt that isn’t on my credit record? for more details.
A credit record default is NOT the same as a “Default Notice”
This article has looked at when a creditor marks your debt as “in default” with one of the credit reference agencies.
Confusingly, the word “default” is also used in the term “Default Notice”. Under the Consumer Credit Act, a lender has to send you a Default Notice before taking you to court over an unpaid consumer credit debt such as a loan or a credit card. 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 possible CCJs, not credit records.
E says
I stopped making payments on a Nationwide Credit Card in January/February 2018. I contacted Step Change Debt Charity in April of 2018 and a DMP became effective from May – with approx’ 6 years to run (I’m still on this plan). Nationwide did not register DMP with the CRA’s; they registered a default a year later in May of 2019. I recently became aware (this site) that this may not have be in accordance with the FOS rule.
Nationwide agreed it was incorrectly reported and will amend to December 2018. I wrote again expressing that I didn’t feel this to be a true reflection of events. and requested it be amended to the start of the DMP. Nationwide are standing firm that an account will only default after 4 missed payments. Presumably this should include reduced payments – i.e DMP? Should Nationwide be taking into consideration the payments missed prior to the DMP coming into effect? I was making the same reduced payments via Step Change in the 4 months leading up to December 2018 so this date makes no sense to me. Please could I ask for some advice about where I stand on this matter, please? Many thanks, again.
Sara (Debt Camel) says
What does your credit record show – were you in arrears by the time the DMP started?
E says
Hi Sara
Yes. Equifax shows: ‘1’ in April 2018 (although I know I missed at least one earlier payment) Then from May (when the DMP became effective) to – October all entries are all ‘I’ but I don’t know what this stands for. Nov’ shows ‘2’ and Dec’ shows ‘3’ , January 2019 ‘2’ , Feb ‘3’ , March ‘4’ , April ‘5’, and May 2019 ‘D’ . They are willing to amend to December 2018. – why this date I don’t know.
TransUnion shows the entries: ‘1’ in April through to June 2018. July – November 2018 shows ‘2’ and December ‘3’.
I need to check what Experian has.
I had a Nationwide overdraft which was also added to the DMP in May of 2018 but they reported the default in June 2018.
Nationwide says to backdate the credit card account to May 2018 would be incorrect. My argument is December 2018 is incorrect. How do you think I should respond?
Appreciate your time.
Sara (Debt Camel) says
1 , 2 etc here mean months in arrears. How much was the Nationwide credit card minimum payment at the start of the DMP? And how much were they being paid in the DMP?
E says
Hi Sara – it was the ‘I’ that I was unsure of rather than the ‘1’, ‘2’ etc.
I have just spoken with Step Change who confirmed that my payment plan did in fact start in April 2018 , not May, and I know I missed payments prior to April. Nationwide were being paid £22.81 every month until the debt was sold to Moorcroft in early 2019. I don’t know what my minimum payments should have been as unfortunately I have no paperwork left. I thought reduced payments would be viewed that same as missed payments? Incidentally my credit reports show missed payments all the way through.
Nationwide have said they default debts after 4 months of missed payments. This morning they have written 3 – 6 months. They state the default which has been amended to Dec 2018 is compliant with the Consumer Credit Act. I don’t understand their reasoning.
Sara (Debt Camel) says
the missed payments before the DMP – did you make them late? how large was the nationwide debt that went into the DMP?
I thought reduced payments would be viewed that same as missed payments?
they are normally seen as getting you into arrears by the amount you are paying less than the minimum. So if the minimum was 3100, a payment of 322 gets you into arrears fast. But if the minimum was onlt £40 then it is pretty slow
E says
The payments were missed altogether. The balance was £1,200. I would imagine my payments on this balance would have been in the region of £40+ so this must be why the default took so long. Seems like they may win this one then, sadly. I haven’t referred to the FOS, I wanted to be clear first.
The other account, also on the payment plan from April 2018, they defaulted in June of 2018 (overdraft).
Sara (Debt Camel) says
if you have proof that your missed two payments before the DMP and that they dont show on your credit record for some reason as in arrears, it is worth challenging that as you would have started the DMP with 2 months arrears…
But this is all going to be clear by the end of the year anyway,
e says
Thank you very much Sara. I will get the paperwork together and refer to FOS.