Defaults and serious credit infringements on your credit report
Both have a negative impact on your credit score, but what's the difference and how long to they stay on your file?
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Noticed a default on your credit file? Then your credit score may have taken a hit. A default is a negative credit listing that can hurt your credit score. They usually remain on your file for five years and may impact your chances of approval for a credit card of loan. But don't worry - there's ways you can build your credit score back up, or even challenge the default if you think there's been a mistake.
What is the difference?
Both defaults and serious credit infringements can lower your credit score and decrease your chances of approval when applying for future lines of credit. Find out what each term means, how they're different and how they can impact your financial history below:
What is a default?
A default refers to an overdue debt of $150 or more. It must be overdue for at least 60 days before a creditor can list it as a default. This includes overdue payments to lenders such as telco providers and credit card issuers. Defaults remain on your credit report for five years, even after you've paid the overdue amount. These are considered negative marks which could hurt your credit score and decrease your chance of approval for future lines of credit.
The credit provider must send two separate written notices to your last known address and request payment before they can list the default with a credit reporting bureau. This is why it's important to keep your contact details up to date and inform your credit issuer if they do change.
What is a serious credit infringement?
A default transitions to a serious credit infringement when you fail to pay your overdue debts and your credit provider suspects that you've left your last known address without providing your new contact details. Serious infringements are listed on your credit report if the lender has attempted contact several times and you haven't paid your overdue amount or may contact within six months.
Consumer serious credit infringements stay on your report for seven years. If you pay it, it will revert to a default and remain on your report for five years. However, the evidence of your overdue account and repayment will remain in your credit history. Serious credit infringements can also lower your credit score and send negative signals to potential lenders in the future.
How can I avoid a serious credit infringement or default?
As defaults and serious credit infringements remain on your credit report for years, it's best to avoid them in the first place. Here are some easy tips to remember to dodge a default or credit infringement:
- Update your contact details. If you move house, log in to your online account or contact your credit issuer as soon as possible to update your account details. That way you won't miss any late payment notifications.
- Set up automatic repayments. You can create automatic payments from your debit account to your accounts so that you never miss a payment.
- Discuss financial hardship options. If you have overdue accounts because you're struggling to pay your bills, you can contact your credit card issuer to discuss alternative payment options. This could include extended payment periods or instalments.
What if I already have serious credit infringements? Can I improve my credit history?
If you already have a default or serious credit infringement, you can still adopt money behaviours to improve your score. This includes simple strategies including consolidating multiple debts, reducing your credit limits and making future payments on time.
If you've ordered a copy of your credit report and spotted false defaults or credit infringements, you can contact the credit reporting bureau to request that they're removed. You can also get help from a credit repair agency to have these illegitimate black marks removed from your credit history.
You can see Finder's guide to credit repair for more tips.
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Can credit providers automatically list a default at the end of the 60-day period?
No, credit providers must follow a process to have the default listed on your credit file. The credit provider must 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. Here's what you can expect from the notices:
- 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 report?
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
You can see an example of how defaults are listed below:
Can a default listing on your credit report 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?
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.
This is why it's important to ensure that you contact your lender to update your contact information and residential address if it changes.
Can a credit provider list an old default on my report?
Credit providers need to abide by certain time regulations to have defaults and other listings legally reported on credit reports. 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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