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
Katharine says
I had a reply from Wonga with two old loans one for £64 and another for £200 but basically saying I am not entitled to anything back, writing down a load of garbage. At least they have been in touch as The Money Shop have completely gone quiet, despite saying it will be October, which is now, when we will next hear from them. I am havng a crap time as my credit score is so low, Provident have declined a 100 loan even though I have nearly paid off a previous 100. I have tried online but just get rejections or offers from ‘scammers’. Being on universal credit does not help me much either but never thought it would turn out so bad.
I only hope the money shop will offer something as it would be nice to get something back. Disappointed with Wonga, I could appeal but is it worth it for the amount??
Sara (Debt Camel) says
“I could appeal but is it worth it for the amount??”
Honestly, No. You are very unlikely to succeed and if you did you would get back a tiny amount.
Do you have a lot of debt at the moment? Are you paying it?
Mrs Y says
I noticed by chance on my credit record that I had a CCJ applied in August this year and I had no idea why?! I called the court that applied the judgement who advised that this was for a parking violation back in Feb, I moved house at the beginning of March so never received the actual details of this violation and then subsequently never had sight of this getting into CCJ territory. I was mortified to see this on my credit file and more importantly I am devastated that I was never given the chance to settle this (if I was proven in the wrong in the first place) before it got to this point. I have been advised that I can pay £255 to try and have this judgement removed however this amount is more than the the debt itself (£185). Would my situation of never being aware of this debt in the first place potentially give me a good chance of having the CCJ case aside? I don’t know what to do and i am currently sick to my stomach with anxiety over this as I have always been squeaky clean with finances. Advice welcome.
Sara (Debt Camel) says
hi, this is such a difficult situation. I suggest you phone National Debtline on 0808 808 4000 and talk about your options.
Ella says
I have one default on my account Of 2000 but now I’ve been paying it’s gone down to 1000 it’s been less than a year but I want to get into buying and selling houses in about 4 years time if I finish paying off my default buy the end of this year would it put me in a better position for a mortgage in 4 years Please I think I am also on the Cifas for 6 years can my employers or anyone else see that
Sara (Debt Camel) says
Yes, paying off defaults helps with getting a mortgage later while the defaults are still on your credit record.
But you are going to find it very difficult to get a mortgage with a CIFAS marker. Lenders will see it. Employers won’t normally unless it’s the sort of job that runs a credit check on you.
Ella says
Thank you
What else does the CIFAS market restrict me from doing
It doesn’t show on my credit score on check my file
Sara (Debt Camel) says
Cifas markers tend to affect credit and insurance applications. It sounds as though you need to check if you are on the Cifas database, see https://debtcamel.co.uk/name-fraud-database/.
Mihai says
Hello. I have a default account . I paid it off in full last month . I had some problems and i could not pay in time so at the moment all my debts are paid . My score is poor . Will my credit score get better in the next 8-10 months as i will be trying to get a mortgage. Or will i have any chance of getting one?
Sara (Debt Camel) says
As the article above explains, paying a defaulted debt doesn’t improve your credit score. What was the default date for this debt?
Mihai says
I think it was July when i agree with them to pay less for 3 months after i ask for extra 3 month but paid it in full one month and a half before . I was paying less the usual but i was paying just ask for some time to get things sorted. So i started having trouble 5 months a go.
Sara (Debt Camel) says
So your problem was all resolved after one and a half months? Then you were back to normal payments?
mihai says
After the extra one month and a half i paid in full my credit. So yes i was ok with the loan paid everything i own them .
Sara (Debt Camel) says
Then I think you have a case to say that a default should not have been added, that you were only ever 6 weeks behind and then your account was brought back to what it should have been. Send them a complaint and ask for the default to be deleted and replaces by a “late payment” marker.
Sarah says
Hi, I took out an account with swimwear 365 in 2017 and thought I had a DD set up. I received some very standard looking photocopied letters from JD Williams relating to paying an account – but as I’d never heard of JD Williams assumed it was a mistake. There was no official notice of arrears or anything. I’ve since learned that they own swimwear 365. The account was only £150 but they’ve added a default to my account. I would have made payment if id been alerted to this in a clear way. Is there anything I can do?
Sara (Debt Camel) says
Have you gone back to your bank statements and checked the swimwear 365 account was not paid?
Nick says
Something worth bearing in mind about defaults and credit scores is that the bureau scores are almost irrelevant for most credit card applications. I had some defaults 5 years ago, all since settled, and my credit score has slowly gone up from very bad to good after 5 years of paying off cards in full each month. However, my experience has been that even with a “good” score no mainstream bank will offer credit while a default remains visible, so it is basically a 6 year wait unless you want a “bad credit” card or loan. Mortgage and personal loan brokers may be more flexible, but in my experience not the mainstream credit card providers.
Anita says
I have a default on my credit score in which the debt has been paid and the 6 years is up in January 2020 once this is removed will my svore improve emough for my creditors will give me a better rate.
Sara (Debt Camel) says
That depends on the rest of your credit record. if you have a lot of other problems, one default dropping off may not make a lot of difference. If this is your only problem you may see a big improvement.
Hannah says
i have a ccj that i haven’t been able to settle that is going to drop off my file this year (July) after this time, will mortgage lenders still be able to see this, or does it disappear for everyone? Understand they could potentially issue a new court order, but if they don’t…would they?
Sara (Debt Camel) says
Are you making payments to this CCJ?
Richard says
I am in the same situation making payments through Stepchange DMP. Interested to know if they vanish or if they are still logged in some way?
Sara (Debt Camel) says
It will vanish from your credit record, but you can’t stop paying as they could then try to enforce through bailiffs, deductions form earnings etc
The creditor that took you to court will still know about the CCJ from their internal records.
DF111 says
Hi, hope everyone is well.
Interested in some advice. I have four credit cards with total debt of £24,000. Due to health problems I lost work & accumulated debt.
I contacted all four lenders when I could no longer make minimum payments. My accounts were then held in the special cases team. Since then however, three lenders have marked defaults on the accounts & one lender has passed the debt on to Wescot.
My questions are:
1) Is it better to fully pay all debt off if possible? Does “partially settled” affect future credit scores / mortgage applications?
2) How do I pay the original lender without getting Wescot involved?
Many thanks for all advice.
Sara (Debt Camel) says
How long ago are your defaults? Are you now back at work with no health problems?
Martin says
Hi I just need a little bit of advice. I have 2 defaulted account both £1500 and I will be able to pay them off by the summer by paying £500 each month. I also want to build my credit score in the process. What is the best way to do this? Could I get a credit card and pay £500 to my defaulted accounts each month and repay £500 to my new credit card? Any advice would be appreciated
Sara (Debt Camel) says
If you have two unpaid defaults on your credit record, you would struggle to get a credit card except at a very high rate of interest. I suggest you simply repay the debts. Then later think about rebuilding your credit score.
Martin says
Thanks for the advice.
Will my credit score go up much by paying off my defaults?
Sara (Debt Camel) says
Not it won’t go up at all! But it may make lenders more prepared to lend to you and it means there is no chance of being taken to court for a CCJ, which would make your credit score go down.
How long ago are the defaults?
Martin says
The accounts went into default last year.
How much do creditors normally take off debt when you ask for a settlement fee?
Also once I’ve paid my accounts off would I be able to apply for a mortgage even though they will show up on my credit file. My credit score is sitting at 482 out of 700 on credit karma. I thought that was a pretty good score considering I’ve got 2 accounts in default but on the website it says it’s low.
Nick says
Why repay the debts in full? Surely better to offer 30% and try and settle.
Most creditors will go for that.
For credit scoring it makes no difference if you have settled partially or in full.
Ella says
Hey if I am on the Cifas and have 1 defaulted payment I’m
Only 21 can I still do first time buyer schemes please
Emmanuella says
Is there anyway to remove a Cifas marker
Sara (Debt Camel) says
Read https://debtcamel.co.uk/name-fraud-database/.
Kirsty says
Hi. I have a number of defaults on my credit file but I want to move house which would involve getting an increase on my current mortgage. All the defaults are almost four years old and all bar one has now been paid. Firstly, how likely am I to be accepted for a higher mortgage with my current high street lender. And secondly, I have the money to pay off the remaining default. Is it better to do this (will it increase my chance of a mortgage acceptance) or will it be better to keep hold of the cash to put towards the house deposit?
P Singh says
Hi There,
I have 3 defaults:
LLyods £1357 – Agreed to accept £678.50
Co-op £290 – Not spoken to yet about doing a deal
Tesco Mob £80 – Not spoken to yet about doing a deal
My quick question is that I have a little more income now and I can pay all 3 debts off in full if required (but would rather not!). Llyods have offered me a deal at 50% and the other 2 i have not spoken to yet. I only care about improving my credit file to get a mortagage for a buy to let property.
My quick question – Shall i pay all 3 off in full or shall I partially satsify as a full and final settlement? If I partially pay full and final whilst this clears the default notice off, will it still look “bad” to a future lender that I only partially paid the debt as opposed to settling the debt in full?
If it DOES make a difference then I suppose I would pay in full.
If it DOES NOT make any practical difference/ little difference I would rather do a partially satisfied deal with all 3 lenders.
Thanks for any help!
Sara (Debt Camel) says
It’s a difficult question. See this article: https://debtcamel.co.uk/dmp-partial-settlement/.