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Default notices. How do they affect your credit rating?

If you miss payments to a debt or you don't pay the right amount, your creditor will eventually default the account and you’ll receive a default notice.

This means they'll cancel the agreement you had with them. A debt can only default once, but after this happens your creditor can take further action to collect the debt.

A default on your account shows creditors that there’s a higher risk of you not paying back types of credit. This means it might be harder for you to take out loans, creditor cards or open certain bank accounts. You might also find it difficult to get a mortgage.

What's a default notice?

This is a letter from your creditor warning that your account is about to default because you're behind with your payments.

The default notice will give you at least two weeks to catch up with any missed payments. If you can do this, your account will carry on as normal. If you can't pay the missed payments in this time, your account will default.

A default notice is normally sent when you've missed or paid less than the full amount for 3 to 6 months.

Default notices only apply to debts which are regulated by the Consumer Credit Act, such as credit and store cards, payday loans, personal loans and hire purchase.

How do I recognise a default notice?

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

An information sheet from the Financial Conduct Authority will be enclosed with the default notice recommending you get free debt help, from us or another charity.

A default notice will suggest you contact a solicitor or Trading Standards for help. You don’t need to do this. The wording of default notices was set in a 1983 law, before free debt help from charities like us was widely available.

What happens after an account defaults?

Your creditor will ask you to pay the full amount of the debt instead of paying the instalments you first agreed. You can offer to pay in instalments at a rate you can afford, but your creditor may not agree to this.

Your creditor can also take further action after the account has defaulted, including:

If the debt is regulated by the Consumer Credit Act, your creditor can't take any of these actions unless the account has defaulted.

Your creditor will also register the default with one or more of the credit reference agencies.

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How will a default affect my credit file?

A default will appear on your credit file for six years, even if you pay off the debt in full.

Any creditor who checks your credit file in this time will see the default. They'll take this into account if you apply for other credit.

This means it’ll be harder to get 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.

Some creditors will refuse your application when they see the default on your credit file. Others will give you credit but they'll charge you a higher rate of interest. It won’t be impossible to get credit, but you’ll have less choice and it’ll cost you more.

Some jobs in the financial services sector may be affected if an account defaults. This is not common. This is a risk if your current employer regularly credit checks you, or if you’re applying for a new job that requires a credit check. Please call us for further advice if you think this might affect you.

It's important to remember that a default doesn't last forever. You'll find creditors are less interested in the default as time passes, and eventually it’ll disappear from your credit file.

What should I do if I get a default notice?

A default notice is a warning sign that your debts are getting out of control. That means you should get free and impartial debt help now before your creditors take any further action.

Free debt advice is available 24 hours a day. Use our Debt Remedy tool - it only takes 20 minutes to build a budget and get your personal action plan.

Or you can call our Helpline for expert advice on 0800 138 1111 free from all landlines and mobiles (Monday to Friday 8am to 8pm, Saturday 8am to 4pm).

Helping you become debt free...

“I wish to thank your staff for all the great help they gave me when I was in so much debt.
They were a pillar of support to me.” (Leslie, Essex)

Foundation for Credit Counselling Wade House, Merrion Centre, Leeds, LS2 8NG trading as StepChange Debt Charity and StepChange Debt Charity Scotland. A registered charity no.1016630 and SC046263. It is a limited company registered in England and Wales (company no:2757055). Authorised and regulated by the Financial Conduct Authority.

*This is the average rating of our service on Feefo by DMP and DRO clients three months into their solution.

© StepChange Debt Charity 2016