If you do not pay off a debt on time, you risk having a default listed on your credit history. If a creditor is unable to contact you and your debt remains unpaid, your default can turn into a serious credit infringement. Both of these have a negative impact on your credit score and can hurt your chances of approval when applying for lines of credit in the future.
You can use this guide to learn more about the differences between defaults and serious credit infringements. Plus, you can pick up some tips to avoid both and keep your financial history in good standing.
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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. You can learn about 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 that's worth $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 if 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.
Both defaults and serious credit infringements can have a negative impact on your credit score and remain on your report for years. As both can be avoided, make sure to keep your contact details up to date and reach out to your credit issuer if you're struggling to repay your loan.