A default is also known as an overdue debt and it can have a significant impact on your credit score. There are so many reasons you may find yourself in a position of being unable to pay back a loan. Unexpected expenses crop up all the time, from medical bills through to car smash repairs and so on.
These are events in our lives that we can’t plan for, but leave us worse off financially. In some cases, you may find yourself unable to pay a loan you have taken out. So what is a default and how does it impact your credit history?
What Is A Default?
Are you wondering what is a default? It’s a debt that is overdue. If you have an outstanding debt that is over $150 and is more than 60 days late in payment, then you have defaulted on your loan. Your creditor will then list this on your credit report, bringing down your credit score.
Defaults don’t happen without your knowledge. The creditor will take a number of steps to make you aware that you are behind on your payments. They will send you two separate written notices requesting payment. If they don’t hear from you and no payment is made, then they will list your debt with a credit reporting body. From here, the default is listed on your credit file as a negative listing.
Now we know what is a default, why is so important that we avoid them?
The Impact Of A Default On Your Credit Score
Your credit score is a number that you are given from 0 to 1200 that is based on the listings on your credit file. So, what is a default when it comes to your credit file?
A default will stay on your file for a period of five years, affecting your ability to borrow money in the future. The next time you go to take out a loan, your future lender will take a look at your credit file and see the negative listing reflected in your credit score. This will make them much less likely to take a chance on you with a loan.
Now you know what is a default, what options do you have for removing it from your credit file?
Removing A Default From Your Credit File
While paying your loan off is the best place to start, it won’t remove the default from your file. But your file will be updated to reflect this, so a future lender will see that the payment was made.
More importantly, defaults can affect more than just your credit score. If you have defaulted on a secure loan, then the creditor has the right to seize the asset you put up against your loan. Depending on the value of your loan this could be your car or house.
You will be given 30 days’ notice to pay what you owe or agree to an alternative plan. However, there is a solution in the form of credit repair. You can have your default(s) removed by getting in touch with a credit repair specialist. We recommend Clean Credit for this.
How To Avoid Defaulting On A Loan
The best thing you can do is avoid defaulting on a loan in the first place. If you do find you are unable to meet the repayments, open up the lines of communication with your creditor and explain your financial situations.
In some cases, a debt management plan can be put in place. This is a non-binding agreement between you and your creditors that changes the terms of the loans. You can often negotiate a longer loan period (resulting in lower monthly repayments). If you opt for partial payments, it is worth noting that this will also appear on your credit file. The benefits of a debt management plan are showing future creditors that you went to great lengths to get on top of your finances and pay back your debt.
If you can not agree on a debt management plan with your creditor, then you can bring in a third party to negotiate it for you. They will find a deal that works for both parties. If this still fails, you may find yourself entering into a debt agreement, which is legally binding and will also impact your credit score.
Getting Help With Your Loans
If you find yourself struggling to pay off your loans then seek the advice of the experienced team at Bad Credit Loans. We will take into account your individual circumstances and find a solution that suits your needs. No matter what financial position you find yourself in, Bad Credit Loans can help you out.
If you have a history of bad credit, we can help you get back on your feet as quickly as possible. If a little help is what you need, then take 30 seconds to get in contact with us today.