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?
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 :(
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.