If you miss payments or are making reduced payments, your creditor may send you a default notice, also known as a notice of default. If the default is applied it’ll be recorded with credit reference agencies and can affect your credit rating.
What is a default notice?
A default notice is a letter from your creditor warning you that you account has fallen into arrears as you have missed or made reduced payments.
The default notice will give you at least two weeks to catch up on any arrears. If you can do this your account will carry on as normal. However if you cannot make up the missed payments your account with go into Default status.
A default notice is usually sent when you’ve missed or paid less than the full amount for three to six months. Default notices only apply to debts regulated by the Consumer Credit Act.
Does a default notice affect your credit rating?
The notice of the default does not affect your credit rating, it is the account moving into default that impacts your credit rating. Your credit score will be updated by the credit reference agencies, after a missed payment or default marker has been added to your credit file. This means when you apply for future credit, creditors would see this information which shows you have not kept up with your contractual payments. They’ll assume that the default means you are at higher risk of not paying them back. If this is the case it may be harder for you to take out new credit such as loans, credit cards and finance agreements.
What happens after you default?
Once your account has defaulted your creditor can take further action to recover the funds owed to them, including:
- Passing the debt to a collection agency. A collection agency can either collect on behalf of the original creditor or purchase the debt.
- Taking court action.
- Applying to a court to take back a vehicle or other goods, if the debt was hire purchase
If the debt is regulated by the Consumer Credit Act, your creditor can’t take any of these actions unless the account has defaulted.
How do I know if I receive a notice of default?
A default notice has the following text at the top in large or bold letters:
- ‘Important you should read this carefully’
- ‘Default notice served under section 87(1) Consumer Credit Act 1974’
The default notice will also give you the following information:
- How much you need to pay to bring your account back up to date
- The deadline to make this payment – you must get at least 14 days to do this
How long will a default affect my credit rating?
A default will appear on your credit file for six years, even if you pay off the debt in full before then.
This means it will be harder to get credit cards, loans or bank accounts because the default tells the creditor there’s a greater risk of you not paying. You’ll also find other types of credit such as mortgages and even mobile phone contracts may be harder to get. It won’t be impossible to get credit, but you may have less choice and cost you more.
After six years, the defaulted debt will be removed from your credit file, even if you haven’t finished paying it off. This does not mean you are no longer liable for the debt, it will just no longer appear on your credit file.
How can The Debt Advisor help?
If you have been issued a default notice and are struggling to meet your monthly contractual payments then get in touch with us.
We are debt solution provider regulated by The Financial Conduct Authority. Our advisory team are available on 0800 085 1825 and will go through a fact find with you aimed to finding the most appropriate solution.