A reader asked if starting to pay a defaulted account will help his credit score. The simple answer is No!
But there are very good reasons why paying defaulted debts will improve your general credit situation, making it easier for you to get a loan, a mortgage or a credit card in future. That credit rating number isn’t the only thing that matters!
To start, it’s good to know what your credit history is now by checking all three credit reference agencies.
Six years is the important date
A defaulted account will drop off your credit record six years after the default date.
It doesn’t matter what happens after the default – whether you pay the account in full, start paying it, agree a partial settlement or don’t pay anything at all, the account will still be deleted after six years.
So find out what all your default dates are. If you think one is too late, read What Should the Default Date Be? which explains how to get an incorrect date changed.
Your credit record gets better after six years unless…
This may sound as though your credit score will get a lot better after six years even if you pay nothing. This is correct, but there is one big exception – your creditor may take you to court and get a County Court Judgment (CCJ). This CCJ would then stay on your file for another six years. Most lenders regard a default as bad but a CCJ as worse.
You may be hoping this doesn’t happen, unfortunately after five years and a few months, a debt collector may contact you and threaten court action if you don’t set up a payment arrangement. If you have moved and not told the creditor your new address, you could get a CCJ without being aware of it.
If this doesn’t happen and the defaulted account drops off, then your credit score will improve immediately. How much will depend on what else is on your credit record – if you have a lot of other debts still showing you may not notice the difference until the last ones go.
Older defaults are less bad for your credit score
Your credit record starts recovering from a default before the end of the six years. I asked Experian how their credit rating calculations changed as a default gets older. The following numbers show what happens to Experian’s credit score if there is only one default and if nothing else changes on your credit record:
- in last 2 years – 350 points
- 2-4 years ago – 250 points
- 4-6 years ago – 200 points.
In practice there is almost always something else changing every month, so you shouldn’t expect to see those exact numbers but they give a feel for what is going on. For some more examples of how much different things affect your credit score, read How much will my credit score change if… ?
Your credit score doesn’t improve faster if you settle the debt, but…
Most people will expect that if they repay a defaulted debt their credit rating will suddenly improve. This doesn’t happen. So you may wonder why you should bother!
There are two very important reasons to start to repay a defaulted debt.
- if you are making payments a lender is a lot less likely to go to court for a CCJ. A CCJ is much worse for your credit record than a default, and it would be on there for another six years.
- lenders all make their own assessments, they don’t just use a credit score. Many lenders regard a settled default, as much less of a problem. So by repaying a defaulted debt you are more likely to get approved for a new loan.
That last point is especially important for mortgage applications. You are very unlikely to get a mortgage at a reasonable rate if you have unpaid defaults. The sooner you can repay them the better.
Each lender sets their own rules, but a current rule of thumb is that if all your defaults are over three years old and they have been repaid for more than a year, it’s worth talking to a broker about whether a mortgage is possible.
This also applies to CCJs
Exactly the same applies to CCJs. If you pay them in the first month the CCJ will drop off completely. But after that if you repay the CCJ and get it marked as satisfied, your credit score will not increase at all.
Again there are good reasons to repay a CCJ – you won’t get hassle from bailiffs or money being taken from your wages. But you are stuck with the bad effect on your credit score for 6 years.
Is it worth making low payments to a defaulted account?
Low payments won’t make much of a dent in your debt, even if interest and charges are frozen. There are positive reasons in favour of token payments – once agreed with your creditors, they will reduce the hassle you get and also make it less likely that you will get a CCJ – but they aren’t going to improve your credit record or make it more likely you will get more credit.
If you expect your situation to improve, then low payments are a good option, but if this seems unlikely then you should probably look at what your alternatives are.
Will a consolidation loan help?
If you have poor credit, it is very rare for a consolidation loan to help.
Using it to repay some defaulted debts or debts with payment arrangements is not going to improve your score. And the loan is going to be expensive – it’s usually better to get a payment arrangement to repay defaulted debts as then no more interest is going to be added.
And getting a guarantor loan to consolidate debt can be a major problem – if you run into difficulty you will then be desperate to protect your guarantor.
It’s better to talk to a debt adviser before taking a consolidation loan.
Conclusion
So although the answer to the reader’s question was No – repaying defaulted debts won’t improve his credit score faster, this isn’t really the full picture. A better reply is:
Your credit score will improve gradually as your defaults get older. This doesn’t speed up when you repay a defaulted debt, but some lenders are only likely to lend to you once defaults have been paid. And starting to repay debts makes a CCJ much less likely, which would make your credit record worse.
Consolidating with bad credit?
Can you get a mortgage if you have debts?
FAQs on statute barred debt
Kerri says
Hi I currently have a very poor credit score, I have 4 defaults, most recent being from March 2019. I have recently just paid off in full all of the defaults and I am looking to get a mortgage, I am not eligible for any credit cards or loans to try and improve my credit because of my score so I am struggling to build it up. Any tips? And do you think I will be able to get a mortgage any time soon?
Weatherman says
Hi Kerri
Unfortunately even if a default has been repaid it’ll show up and might alarm lenders. Some lenders might be a bit more forgiving if you’ve repaid the default, but there’s not a guarantee.
It can take a bit of time to improve your credit score if it’s as low as it sounds. Try taking the steps on this page: https://debtcamel.co.uk/credit-score-change/
Don’t forget that a lender doesn’t look at the score itself, but at the information underneath it. So if you have a deposit and a salary that could qualify you for a mortgage, try speaking to a broker that specialises in ‘bad credit mortgages’ – but bear in mind that the rates you pay will be higher.
After about 3 years the impact of the defaults decreases, and after 6 years they fall off altogether – so your option is to wait it out.
Good luck!
Sara (Debt Camel) says
The “rule of thumb” used to be (pre pandemic) that if your defaults are all older than three years AND they have been repaid for more than a year, then you could get a mortgage from some high street lenders at an OK rate. Not their “best” rate, but a decent one, not a bad credit mortgage.
It’s hard to predict the mortgage market for the rest of this year. But hopefully it will go back to that old “normal”.
I think in your case that will be well worth waiting for until, it sounds like, April 2022.
I don’t recomment a bad credit mortgage sooner. A bad credit broker will assure you you will be able to mortgage down to a good rate after a couple of years. But it is you stuck with the expensive mortgage if that isn’t possible. I have seen this happen to too many people :(
Lauren Garghan says
Hi Kerri, very similar situation to me. 4 adverse defaults on my file, 1 just over 2 years old and 3 at over 3 years old. All satisfied as of November 2020, some earlier. My partner and I are currently in the process of hopefully getting a mortgage with Aldermore, with the government help to buy. It’s a fixed rate for 2 years, a higher interest rate yes but we’re hoping that after the two years we will be able to get much better rates.
My question is – all my defaults are satisfied in full. I have a credit card that is paid off with the full balance available. Would making a small purchase on this card and paying it off in full every month help boost my score? Or is it a pointless exercise due to the defaults?
Many thanks Debt Camel!
Sara (Debt Camel) says
This credit card, were there any problems with it in the past or does it have a clean history?
Lauren Garghan says
Hi Sara,
Clean history, no late payments.
Thanks
Lauren
Sara (Debt Camel) says
Then using it every month and repaying in full automatically by direct debit will help your credit score a bit. After the defaults have dropped off, having this excellent debt record remain I’ll help get your score up to very good.
Lauren Garghan says
Brilliant thank you. I’ll make a small purchase every month and pay it off in full then, many thanks for the advice!
Simon says
Hello,
So i am in the same boat. I have 6 credit cards that i defaulted on in Jan 2019.
I have partial paid off 2 off them (capital one and luma)
I still owe 16k on the other 4 (barclays, mbna, vanquist, bank of scotland) i was hoping to get these partial paid by the end of this year (11k paid back roughly)
If i have these all partially paid by December 2021 and then save say 20k by Decemeber 2023 what chances do you think i will have in getting a mortage?
Sara (Debt Camel) says
I honestly don’t think there is any point in me guessing what the mortgage market will be like in 2023.
You know what you have to do – Pay off the defaulted debts (and also any with missed payments that haven’t had a default date added) as soon as possible and then save as large a deposit as possible.
Also your credit record needs to be squeaky clean from now on – make sure if you move house all your old utilities are paid on the final bill before you cancel any direct debit. And same if you change your mobile provider. You do not want to sort out all your old problems then find a new default has slipped past you.
simon says
Hi Sara
thank you for the great advise. could i ask. on my Vanquist account they never put on a default. I owe them 3.6k, if i offered them a settlement fee of say 3k and they accepted it would they then put a default on it? they said once the card is paid off it will closed anyway i just wasn’t sure if they would then apply a default which would effect me for another 6 years. if they do i’ll just pay them in full.
sorry another quick question.
My friend is in an IVA and owes just over 20k, he has 3 years to go on it and has been told by the IVA people that if he pays 11k then everything will be closed off. (he has an inheritance coming for 15k) so was thinking abut doing that but i didn’t think he could as it was an IVA, i thought he would have to break from the IVA and go back to his creditor to make them an offer like i am doing.
does that sound right?
Sara (Debt Camel) says
when did you get missed payments or a payment arrangement being recorded on your Vanquis account?
your friend – suggest he reads https://debtcamel.co.uk/iva-settlement/ and that he should ask a question on that page .
simon says
Hi Sara
my last missed payment registered on July 2020 i have not missed a payment through them, It’s just if i can pay them a partial payment to settle the account (since they are going to closet it anyway) i would rather do that but not if they are going to then put a default on after its closed as the 6 year clock will start again whilst i am already 2 years into that 6 year clock now.
thats why i am doing partial payments with the other as they have already put defaults on the them so my credit is already bad because of that so makes no sense to pay them in full.
thank you for the great advise you give me and others everyday, you make a difference to people’s lives and i hope you know that so thank you very much.
Sara (Debt Camel) says
“my last missed payment registered on July 2020 i have not missed a payment through them”
are you saying you have never missed a payment to Vanquis? why are they going to close it?
The 6 year clock for dropping off starts with a default or a setlement. If you just have missed payments or a payment arrengement, the debt will not drop off your credit record until 6 years after it is settled.
Simon says
Hi Sara
So i am in a DMP plan with pay plan who have been very helpful the past 2 years. All the interest is frozon on the accounts and i pay them £206 a month. I am saving and when i get to a certain amount i ring one of them up and offer them an amount to close the account.
When i first went into the DMP back in Decemeber 2018 thats when the missed payments started and the defaults kicked in around september 2019 and all the accounts.
When i log into total money all of my credit cards accounts say defaulted since Sept19. When i drill into them every month says default on them all the way up until Feb 2021 – so i am assuming they would drop of around october 2025 would that be right?
Wirh vanquist for some reason they never applied a default they just classed it as a missed payment. They accepted the offer from pay plan and froze interest but thet sent a letter saying omce the account is paid in full it will then close. So i was thinking shall i do a part payment for them as well to get it paid quicker or will that mean i would need to wait another 6 years from then for it to start improving my score
Sara (Debt Camel) says
It would have been better if Vanquis had added a default date back in September 2019. Those defaults will disappear completely by Oct 2015 as you say.
With the Vanquis one, if you settle it now, it will stay on your credit record showing the old missed payments until Mar 2027.
So from now to Oct 2025 you will have lots of defaults and one account showing settled with missed payments. Not really much improvement from them all showing defaults.
Then from Oct 2025 to Mar 2027 the defaults will have gone but the old Vanquis problem will still show.
So Vanquis haven’t done you a favour here, they have harmed your credit record for longer.
One thing you could do is offer them a partial settlement on the condition they add a default back in Summer 2019.
Simon says
Hi Sara
So all my other credit cards that have defaulted back in Sept 2019 will fall off Sept 2025 right?
But if i end up paying vanquist in full and they close the account they won’t put a default on?
It will just show as the last missed payment being July 2020 as they are classing everything as a normal payment now.
Sara (Debt Camel) says
all my other credit cards that have defaulted back in Sept 2019 will fall off Sept 2025 right?
yes.
But if i end up paying vanquis in full and they close the account they won’t put a default on?
that is less certain. The problem is it looks as though they should either have defaulted you or carried on with missed payments or a payments arrangement. As they are marking you as making normal repayments, that is wrong if they have frozen interest.
So the problem is, when you settle the account, in full or in part, they may well notice this and correct it. But they may not. When a lender has made an error it’s hard to know what the best option for you is.
But as I say, it would be better if they had defaulted you before as at least then your credit record will be clean from Oct 2025.
[some of the dates in my previous reply were confused. I have corrected them.]
Simon says
Hi Sara
I thought that about the dates. Yeah i think it would have been eaiser if they did default me like the rest.
Sorry i didn’t mention. I have been in the DMP since Dec18 and as i say vanquist just had it down as a couple missed payments until it was fully uo and running then they classed it as just a normal payment. Reason why there was a missed payment in june20 & july20 was because i couldn’t afford my DMP them months so made a token £1 payment but as i say its back to normal payments. Even on clear score it says ACTIVE under the account whilst the others have default and been sold to the PRG or Moorcroft.
I think i’m best part paying them ones and paying vanquist off in full, just incase they try to put another default of somesort on
Nick says
I think that most or all lenders are currently very risk averse. I had some defaults 6 years ago, all long since repaid, and which will drop off my file in the next month or two. I checked with a broker a month ago to look into mortgage possibilities and the response was “no way”. Apart from the defaults I have had blemish free credit card and bank accounts for 6 years, all cards paid off in full every month, have a high income and have significant savings, yet my most recent credit report assessed me as “very bad”. A year ago it was “good” and nothing has changed since then in my personal circumstances. I think that lenders are currently scared of a wave of defaults, repossessions and falling residential property prices.
Rovilsan says
Hi,
I had a default which ended mid 2020. Creditor contacted me before the default end date and threatened me that they will take me to court if I don’t pay it back. So I told them I will make monthly payment as I cannot afford to make large payment.
It’s now been almost a year and still on monthly payment and default has been lifted.
My question is will it affect in any way if I stop paying them the amount I’ve arranged? Will they take me to court?
Any advice will be appreciated.
Thank you
Sara (Debt Camel) says
See the Debts defaulted over 6 years ago but where you have made payments within 6 years section https://debtcamel.co.uk/debt-not-on-my-credit-file/which looks at this exact situation.
Depending on what sort of debt it was, asking for the CCA agreement can sometimes help, see https://debtcamel.co.uk/ask-cca-agreement-for-debt/.
Jay says
Hi, my credit rating took a beating back in 2018 due to some personal issues. I’ve cleared 3 credit cards which I’d been making minimum payments on and literally am up to date with anything I owe. I defaulted on an aqua credit card which went into default in 2019, it was issued with a £900 credit limit. I challenged them on the affordability and checks but they rejected. I was made redundant in September of last year and I’m trying to repair the damage that’s been done. Would it be of benefit now to start making minimum payments to reduce the balance as I’m planning on looking for a mortgage in the next 2/3 years. Obviously the default won’t drop off until 2025 but I just want to do the right thing but it’s a minefield trying to work out whether to be patient or try and reduce the balance. Any help and advice is greatly appreciated.
Weatherman says
Hi Jay,
If you’re able to, reducing the balance is a good idea. If you can clear the debt by the time you apply for a mortgage, then although the default will still show, it will be marked as ‘satisfied’. Making payments is also a good way to stop Aqua taking further action like a CCJ that could further damage your credit report (although it’s not a guarantee that they won’t).
You can also ask Aqua to freeze interest and charges on the account for a period, particularly if you’re unemployed. They might not agree, but if they do, that means any payment you make goes toward paying off the amount you owe.
It might also be a good idea to speak to a debt adviser about your situation to make sure you’re aware of all your options & the implications for you & your credit report. National Debtline are free to call: 0808 808 4000
Sara (Debt Camel) says
As a rule of thumb, you want all defaulted debts to have been settled a year before a mortgage application.
T says
Hi, thanks for the informative article. I have one default on my credit file which I’ve been paying off on a monthly basis since August 2020.
At the start of 2021 I opened accounts with a couple of credit builders including loqbox (unsecured loan) and Bits (store card) and thinking of adding a third with Portify (loan). Will my score increase with these subscriptions? Or will I have to wait a few years before the default gets older, the default occurred in May 2020. Appreciate some feedback, thanks
Sara (Debt Camel) says
I think your score is only going to improve slowly. LOQBOX will help a bit, but the main problem is the default is so recent.
I suggest not getting Portify and using the money you would have spent on that to pay of the default quicker. Clearing the default won’t improve your credit score but it can make a big difference to your chance of getting credit in the future.
T says
Thanks, appreciate the suggestion.
Daniel says
I am in the process of house hunting and mortgage applications but when I completed my credit check I only recently found out that I had a Default Account against my name from May 2020.
I have paid the outstanding amount in full and received receipt of such payment from Lowell Properties.
They have informed me that:
“Every month we send details of the payments we receive to the credit reference agencies. As there is no outstanding balance
due on this account, we will inform the credit reference agencies that your account has been settled.”
I am in contact with Experian also in regards the the Default and they have informed me that:
“They’ve (Lowell) confirmed the default is accurate, so we don’t have permission to amend or delete this entry on your credit report”
“The account defaulted prior to Lowell purchasing it”
I would appreciate any independent advise as to how this will still affect my credit score and also if it will affect my obtaining a mortgage.
Subsequently my wife has what is deemed a perfect credit score (999) on Experian. Would this work in our favour?
Many Thanks
Sara (Debt Camel) says
What was the default for, who was the lender? Do you agree it was reasonable?
A recently settled default is going to make it MASSIVELY harder to get a mortgage. Your wife’s credit score doesn’t make a difference, lenders tend to look for reasons to refuse.
Daniel says
The default was for an internet dongle from Three Network. It was then passed to Lowell. I agree it was reasonable.
I appreciate the capital letters to emphasize how hard it is going to make things…
Is it worth contacting either Lowell or Experian with a goodwill adjustment letter to let them know it was an honest mistake and not in my character.
Many Thanks
Sara (Debt Camel) says
Certainly not worth contacting Experian – they just report what the creditor tells them too. I would be very surprise if Lowell will agree to delete as a goodwill gesture.
You can add a Notice of Correction to your credit record to explain you were not told about the balance owing and yuou paid it as soonas you found out (if that is correct?). See https://debtcamel.co.uk/notice-correction-credit-record/. Many mortgage lender may not be that interested in the excuse though.
You need to talk to a mortgage broker about your options. If you just apply to a lender direct you are likely to be refused. A very large deposit can help…
John says
Any advice on how to resolve this?…
In short, I was lied over the phone that stopping the contract will cost £50, which I couldn’t find anywhere in the contract, so after I paid all installments, I removed direct debit from my account.
BT BRITISH TELECOM ( Never take contract with them! ) have opened a default against my account for £34, which is completely diffrent than what I was told over the phone.
Opened:
29 Jul 2016
Defaulted date:
25 Oct 2019
So since then, I haven’t heard anything from them, they knew that I was changing address and they still had all my contact details, but they never contacted me with a default notice, the other problem I have is that the account defaulted 3 YEARS after it was opened, which is ridicilous, as that means, the default is only 1.5 years old instead of 4.5y.
Weatherman says
Hi John
No organisation needs to contact you before adding a default on your credit report (confusing, the ‘default notice’ isn’t about credit report defaults but about court action – and only applies to financial services anyway).
You should complain to BT, and try two arguments:
1) They should never have added this default, because you never owed the money
2) If you did owe this money, they should have added the default 3-6 months after you missed the payment, as per the ICO guidance
If they refuse, go to the Ombudsman that covers them (there are two – BT can tell you which one they use).
John says
Hi Weatherman,
Thank you for your reply!
I went along and made a payment, because I wanted to get it “Settled” as fast as possible, because I needed to have a clear account for the job. Do you think I still can go and complain and do something about it, to achieve either:
A. Have it completely removed
B. Have the time changed, such as, the defaulted started from 2017, instead of 2019
Sara (Debt Camel) says
A) is much more difficult as you have paid it.
B) if you didn’t make any payments from say March 17 then you can Argue that the default should be no later than 6 months later in September 17.
Sunday says
Hi,
I have a default registered in March 2019 and have accepted an offer from the collection (Hoist Finance) which will only settle the amount by September.
As I am interested in making a mortgage application later this year, is the rule of the thumb cast in stone?
Sara (Debt Camel) says
Rules of thumb are by definition not cast in stone. But with a default in the last two years which you have only just repaid you will struggle to get a mortgage at an OK rate from a high street lender.
If you will be in a position to apply for a mortgage soon, why can’t you repay this default sooner? That still won’t be good, but the sooner it is repaid the better.
Sunday says
Hi,
Though I can easily repay the amount, I see no reason why as the default (which happened due to my being unemployed then) won’t go off.
I will finish paying off my mortgage next month, what would the impact of this be on my credit score which on Experian is Fair but Poor on both Equifax and TransUnion (basically as a result of the default)?
I now need a bigger house and my intention is to rent the current one out to further shore up my future income.
Sara (Debt Camel) says
The reason to repay it as fast as possible is because it will look better on a mortgage application.
Paying it will not improve your credit score but mortgage lenders don’t care what your credit score is, they look at your credit history and make their own judgement about it – this includes how long ago all your debt problems were sorted by defaults having been repaid.
Your credit score isn’t going to improve when your mortgage ends.
Andrew says
Hi,
I got my default March 2019 on my Nationwide Credit Card. Limit was 4800 with the balance very close to that number so credit utilisation not good obviously. I’ve since been paying monthly to a debt collector 30 a month. But last month I just decided to pay it all off and be done with it. Now, I’m completely debt free (which feels good). My Experian score is Excellent but my Equifax is Poor. Experian just got updated whilst the Equifax hasn’t. I would be happy if Equifax matched the level of Experian being Excellent of course but Good is doable. Nationwide haven’t yet updated it on their end but when they do, it’ll be closed automatically. When this is done and the credit agencies have been updated to show this, how likely is it that I’ll be able to apply for a PCP or HP of 20,000 with low interest (preferably apply for a personal loan through Nationwide initially)?
Thank you for taking the time to read this and I look forward to your response.
Andrew
Sara (Debt Camel) says
it’s hard for me to guess.
Now you know how nice it is to be debt-free, do you really need to spend that much on car finance?
And I don’t understand what you mean by “preferably apply for a personal loan through Nationwide initially)”?
Andrew says
I’ve since reconsidered to get a PCP instead. The car value is 20000. I’m waiting for my credit report to be updated on all sides. It is nice to be debt free but the PCP is a loan secured against a car essentially so there’s little to no risk. How likely would it be to get a low interest rate with a PCP?
Sara (Debt Camel) says
the PCP is a loan secured against a car essentially so there’s little to no risk.
Little risk for the lender…
But for you PCP is a way to keep you in debt forever so at the of the contract you take out another one. effectively you pay all the high depreciation costs of the years years of a car and never get the benefit of the later years where the depreciation is low. It only looks cheap because of the large payment at the end.
I have no idea what sort of interest rate you can get.
Andrew says
What’s best then? HP or a loan from the bank?
Sara (Debt Camel) says
Often it the one at the lowest rate of interest.
Bianca says
Hello . I wanted to apply to buy a house . And i see a have a deafolt from november 2015 . If i will pay now full balance the deafolt will still appear for another 6 year ? Thank you!
Sara (Debt Camel) says
what sort of debt was that? Have you been making any payments to it?
Bianca says
It’s a phone not been paid. And I didn’t know about it. I have exparian credit report and is not showing there. But the agent ask me do to checkmyfile and there is. So I don’t know what to do. I don’t want to have debs at all. The default date is 15 November 2015. I was thinking to contact them and pay the balance in full. I have 610£
I didn’t make no payment till now :( I don’t know what to do. I’m really stressed
Sara (Debt Camel) says
Do you now agree you owe the money? If so then settling it is the best thing.
This loan will drop off your credit record in Niovember this year if you settle it in full or make a lower settlement offer which is accepted,
Bianca says
Ok , thank you 🙏! Tomorrow i will give them a call . I hope they will accept to pay the balance and they will not take me to court! 🙏 fingers cross. Thank you for your help
David says
It would automatically drop off in November anyway wouldn’t it as it’s 6 years from when the default is registered
Sara (Debt Camel) says
Yes it will
Bianca says
I paid today what was on that contract in full . They was very nice . So I hope everything will be ok. Thank you for advice.