You should always work towards good credit, but it's also important to understand bad credit. Here's what you need to know about defaults.
"Bad credit" is a large umbrella and covers several different kinds of negative listings that can be on your credit file. A default is just one kind of bad credit listing. Defaults will generally remain on your file for five years and place you in the bad credit basket for lenders. Find out more about what type of accounts you can default on, the different types of defaults that exist, how default listings can change on your file and everything else you need to know about these listings in this guide.
What is a default?
A default is any consumer credit account that is overdue by more than 60 days where you owe more than $150. This can be personal loans, phone bills or even utility bills. If the default is less than $150 or if it has been overdue less than 60 days, it cannot be listed on your credit file. Keep in mind this doesn't apply to commercial credit files, where the minimum default amount is $100.
Can credit providers automatically list a default at the end of the 60-day period?
No, there's a process credit providers must follow in order to have the default listed on your credit file. The credit provider needs to send you two separate notices to your last known address (physical or email address) before it can give a credit reporting body details regarding a default. The address the provider will use should be how it usually contacts you.
- The first notice: You'll be informed your payment is overdue and you'll be requested to pay the overdue amount. You'll receive this notice as soon as the default becomes overdue.
- The second notice: You'll be informed that if you don't pay the outstanding amount the credit provider will inform a credit reporting body and have the default listed. The credit provider needs to wait 30 days after sending the first notice to send this notice.
After issuing you the second notice you'll have 14 days before the default is listed on your report.
What will be listed on your credit file?
The credit provider will list the following information on your credit file in relation to your default:
- The credit provider and the type of account it was
- The amount listed as a default
- The date the listing is due to come off your report
Source: ASIC's Moneysmart
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Can a default listing on your credit file change?
Once a default is listed the amount can't be changed to reflect recent payments or missed payments. If you miss a payment it will be listed as a separate default. However, the listing can be updated to show accruing interest and fees. If you pay the full defaulted amount the credit provider needs to inform the credit reporting body who will update the listing to "paid".
What if a lender can't get in contact with me about a default?
As outlined above, a lender needs to send you to notices before it can list a default on your credit file. These notices should be sent in the way your credit provider normally contacts you, whether it be through email or by mail to your physical address. If no payment is received after those 60 days the credit provider can have the default listed after 14 days.
However, if the credit provider cannot get in contact with you at your last known address in order to get the default paid this is no longer referred to as a default. It will be listed on your file as a serious credit infringement and it will remain there for seven years. Once you pay the outstanding amount you can have the listing reverted to a default listing where it will remain on your credit file for five years.
Can a credit provider list an old default on my file?
Credit providers need to abide by certain time regulations in order to have defaults and other listings legally reported on credit files. In terms of defaults, a credit provider cannot wait more than 90 days after issuing you with the second notice to have the default listed on your credit file. If it doesn't list it within this time it's required to send you another notice telling you it will list your default on your credit report, and then wait another 14 days to list it.
Statute barred debts are also not allowed to be listed on your credit file. These are debts that credit providers can no longer legally demand that you pay.
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