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.
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.
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.
This article was originally written in 2015. It was updated in 2017 with the details of how Experian treats defaults as they get older.
Some debts Settled and some Satisfied – why?
Can you get a mortgage if you have debts?
Is your old debt statute barred?
Nick says
Hi
In 2014 I was in financial difficulty and had no option but to default on about £80K of credit cards and loans. In 2016 my financial circumstances improved significantly and in 2016-17 I was able to make final settlement of all but one of these with part payment of 35-50%. The exception was a John Lewis Partnership Mastercard debt of £9K where I contacted them several times in 2016 with a settlement offer, but heard nothing back. According to my credit report files this debt was marked as settled in 2016 so I did not bother chasing JLP further as I assumed that they had written it off.
JLP have now, 2 years on, written raising debt repayment.
My question is whether it is possible for JLP to do this after credit reports from all credit agencies have shown it as settled for the past 2 years? Presumably the agencies would only have done so on information from JLP?
Any thoughts much appreciated, thanks.
Sara (Debt Camel) says
Legally your debt still exists even if they made an error with your credit record. You could however put in a complaint to them saying they are not treating you fairly, point out you had no response to your emails/letters in2016 when you tried to settle your debt so you assumed that it had been written off as they changed your credit records to show it was settled. Attach copies of your 2016 communications and your credit reports to prove this.
Nick says
Many thanks for your very helpful reply. I have now sent a response to John Lewis Finance repeating my original offer of 35% payment in full and final settlement and making a complaint about not having been treated fairly in that after ignoring for over 2 years my repeated offers by letter and telephone to settle, and having notified the credit reference agencies that they written off the debt, they had contacted me demanding a response within 10 days and claimed that they had been trying to make contact with me, the latter point being simply untrue.
It was an interesting experience dealing with my various debtors. Cabot was easily the most professional, reasonable and businesslike, and Amex was reasonable if disorganised. PRA and Hoist were a nightmare to deal with, but I eventually got a decent settlement out of them by dint of making repeated complaints. I work in compliance and know how to do this, but I pity anyone vulnerable who has to deal with these firms.
Claire says
Hello
I have a recent default with TSB for £1006 I had opened a complaint with financial ombudsman who awarded £300 compensation however said the default was legitimate! I’m sure that the ombudsman said it was ‘better’ if we paid off the £1006 within 1 year of the date of default as it would have less impact on credit file, is this the case?
Sara (Debt Camel) says
Your credit score will not improve if the date is repaid earlier. BUT once it has been repaid there may be other creditors that are more prepared to lend you money – when making a decision on giving new credit, lenders use their own criteria, not the headline credit score.
Dean says
Hi Sara, I have realised that Barclaycard have charged me over £800 of interest between February 2013 and October 2016 when they passed the debt over to Link.
Recently I complained to Barclaycard as they had not added a default and they have kindly defaulted the account to March 2013. Is it legally / morally ok for them to charge interest and charges on a defaulted account whilst I am on a DMP? Barclaycard recently gave me a refund for around £100 as they failed to assist customers effectively in 2013, and they said that if I feltl that I deserved further redress I should contact them. So I have again written to Barclaycard with reference to this letter and copies of the statements showing the interest and charges. Also in 2016 they used quite heavy collection tactics, so I also referenced this as it caused uneccessary stress as I was clearly keeping up with my agreed DMP payments. What do you think my chances are of getting the interest removed from my debt? Thanks Dean
Sara (Debt Camel) says
I think it’s right to challenge the fact they added interest and ask for it to be refunded. See https://debtcamel.co.uk/creditor-wont-freeze-interest/
Dean says
Thanks Sara
John Heart says
Hi,
I’ve recieved a default notice from a loan company asking me to pay them £500 before the 19th October otherwise a default will be registered. I have rang them today and sorted out a repayment plan. I really can’t afford a second default (previous one now 2-3 years old), will this repayment plan stop the default if I stick to it or will I get the default unless I pay that amount by that date?
Sara (Debt Camel) says
Have you actually defaulted on this loan? how many months payments have you missed? The repayment plan – how large are these payment compared to what you should have been paying?
John heart says
I got a default notice in the post last week, stating that £500 needs to be paid by 19th October, I called them today and explained I could afford to pay the full amount outstanding. I’m about 5-6 payments behind, I should be paying £149 a month but have just agreed to pay the balance over 5 months at £179 a month (£1000 left on the loan).
Sara (Debt Camel) says
If you are 5-6 payments behind, then the creditor could add a default to your credit record now if they want – this has nothing to do with the Default Notice you have received, see https://debtcamel.co.uk/debt-default-date/.
But if you make the payments they may not – sorry it’s not possible to be definite,
Angeline says
I stopped paying to vodafone and now have a default. Account closing in 2017 now I need to get a joint mortage and my score is 250 which is very poor. What shall I do? As the mortgage company said the credit check would not let me get a mortgage but I can give a report to override it. But this report shows a £700 default for vodafone and a poor score.
Sara (Debt Camel) says
You haven’t said anything which suggests there is a reason to challenge the default. the best you can do is pay it in full immediately. If you do that you will still find it really had to get a mortgage at a half way reasonable rate for a while (see https://debtcamel.co.uk/mortgage-recent-defaults/) but the longer you delay settling the debt, the longer it will be.
Tina says
Hi, I have a default on my account from 2016. I have been sent a letter offering to settle the debt partially, reducing the payment of 80%.
How will this affect my credit, and will it impact the chances of getting a mortgage, or borrowing further, if i partially settle? Or its best to continue paying the full payments until i finish paying the debt?
the Default date is 2016, and the payment is £683.80 They are willing to write it off 80% of this amount, and that i pay £136.76 to clear the debt.
Thanks
Tina
Sara (Debt Camel) says
It won’t make a difference to your headline credit score if you settle the debt in full or partially. And the debt will disappear from your credit record in 20122 whatever you do.
A few lenders )including some mortgage lenders) may prefer to lend to you if you settle it in full though. It can be hard to decide if this is worth it…
If you can’t afford to settle it all but could afford the partial settlement I think you should definitely grab it. It is better to have a debt partially settled than still be repaying a defaulted debt.
And if you have other debts, it’s also probably better to take the partial settlement and pay off more of the other debts.
Tina says
Yes thank you very much. Very hard decision.
Alysha Lang says
Hi I. Have been given a default for a credit card in September 2018 I have now paid that in full, I no that it will be on my record now for 6 yrs, I was just wondering if I’d be accepted for car finance? My other car was on finance I paid that in full never not paying on time, will that go for me do you think?
Sara (Debt Camel) says
There is a huge range of car finance. From great 0% deals to paying more than 30%… you may be able to get an ok or even good deal but not the best. The longer you can wait before applying the better your chance of being accepted for an OK deal
Harry says
Ok so I have a few old defaults 3-4 years and I have been paying them £1 a month to keep them away.
Because I am making a payment to them does that mean it is a fresh default every month or the 6 years starts all over again?
Do I just stop making the payments after the 6 years? if I do, do they register a new default because I have defaulted on an agreement?
Sara (Debt Camel) says
You know you have defaulted on your debts, but have the lenders added a default to your credit records? The only way to be sure is to check, not assume they have! See https://debtcamel.co.uk/best-way-to-check-credit-score/ for how to check.
If there has been a default added, a new D (for default) is added to your credit record every month but this doesn’t mean anything – the defaulted r cord will drop off your credit record and not harm your credit score 6 years after the default date.
BUT this doesn’t mean you can stop paying at that point. Read https://debtcamel.co.uk/paying-old-debt/ which looks at this topic.
Catriona says
I have a default on my account related to a mobile phone company after taking out a sim only contract. The SIM never arrived and the DD did not get set up properly. I can’t pay the debt as I need to pass their security to do so. To pass security I need the SIM or a phone device make and model the SIM has been activated on. I went to the Ombusman, but was told my rights and the delivery being between the supplier and delivery company is not recognised by O2. I must find the undelivered SIM card.
The thing is, it is coming up for 1year since the contract started and the first “non payment” notification which was 14calendats days after I purchased the SIM contract online. It is 6months since the default notice.
How much trouble am I in? My credit rating is the lowest possible- but I can’t get the company to agree to respect my rights and their contract terms. Nor can I just “give up” and pay off the debt. There complaints are awaiting the 1 year anniversary and 18months stage- but they won’t tell me what they are going to do as their complaints department won’t allow them to tell me and won’t speak directly. (The front line staff and shop staff have been excellent and sympathetic trying everything they can think of to sort this)
Do you think this will end in a CCJ or worse?
Sara (Debt Camel) says
I think this is a consumer issue – you are being asked to pay for a SIM card that was never delivered. Go to your local Citizens Advice and ask for their help to resolve this.
Sara (Debt Camel) says
My friend Helen Dewdney, who runs the Complaining Cow website, agrees this is a consumer issue, see her article https://www.thecomplainingcow.co.uk/a-guide-to-the-consumer-rights-act-2015/ which covers your rights because the SIM was never delivered.
Catriona says
Helen has been fantastic. Her site is very enlightening and I am getting ready for my next attempt to bring sense to this situation with her site help.
Thank you.
Mark says
I read the quicker you pay a default the better, I went to work abroad and recently got my credit report to find out I have a old default from 2014 to Vodafone for £788 , if I pay it off is there still a chance I could get a mortgage or am I best waiting till next year when the 6 years is up?
Sara (Debt Camel) says
Definitely pay it off ASAP if you don’t want to be taken to court for a CCJ!
If your credit record is otherwise very good AND you have a very good deposit you could add a note to your credit record saying you were unaware of the debt and paid it as soon as you retunrned to the UK after x years (see https://debtcamel.co.uk/notice-correction-credit-record/) and talk to a broker now about the chance of a mortgage. If not an optimistic reply, wait until the default goes.
Robert says
Hi.
I defaulted to Scottish Power more than 5 years ago and have been informed today that the debt is now written off.
I’d like my credit report to show the default as settled / satisfied, since I intend to make enquiries about a mortgage this year, before the default drops off my credit report in Dec.
Seems unfair that I’m happy to settle the debt and am not permitted to do so despite it counting against me for another year.
Is there no way around this?
Thanks in advance
Robert
Sara (Debt Camel) says
Why has the debt been written off?
Sean says
I’ve just checked my credit report and there is default debt date from accounts opened in 2012 from when does the six years come into play from date of account open or from date of default
Sara (Debt Camel) says
From the date of the default.