Having a default listed on your credit file can feel overwhelming. But what exactly is a credit file? What is a default? And why does it matter? Many people only start to care about their credit score when it’s already at risk. This article breaks down how a default can end up on your credit file and what steps you can take to avoid it.
What is a Credit File?
Your credit file is like a report card for your borrowing history. It keeps track of your financial activities, including:
- Applications for loans, credit cards, and services like electricity, gas, internet, and phone plans.
- A list of all your bank accounts, even those with no money in them.
- Whether you make monthly payments on time for things like mortgages and credit cards. (Not all lenders share this information.)
- Overdue debts, defaults, and other serious credit issues.
- Public information such as court judgements or business roles.
- Records of bankruptcy or debt agreements, like Part IX (9) Debt Agreement or Part X (10) Personal Insolvency Agreement.
You can access a FREE copy of your credit file at ClearScore.
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How Does a Default Get Listed on my Credit File?
A debt can only be listed as a default if it meets two key rules:
- It’s for $150 or more.
- It’s at least 60 days overdue.
If both of these apply, your creditor can start the process to list the debt as a default. Here’s how the timeline usually works:
Day 0 – Bill is Due
If your bill due date is approaching and you know you won’t be able to pay it on time, contact your creditor to arrange a payment plan. Many creditors are willing to help.
Day 60 – Bill is Officially Overdue
If the bill remains unpaid 60 days after the due date, it is officially overdue. Your creditor may begin collection actions such as calls or emails. Late fees and interest charges typically apply.
Day 90 – First Written Notice
After the bill has been overdue for 30 days, your creditor must send a written notice. This informs you that the payment is overdue and requests that you pay the outstanding amount.
Day 120 – Second Written Notice
If the debt remains unpaid 30 days after the first written notice, your creditor will send another notice. This second notice will:
- Reiterate that the debt is overdue.
- Warn that the debt will be marked as a default on your credit file if unpaid.
Day 134 – Default is Listed
If you don’t comply with the second written notice within 14 days, the debt will be marked as a default on your credit file. This default will remain on your credit file for 5 years and may impact your ability to get credit in the future.
After the Default, What Happens Next?
Once a default is on your credit file, it stays there for 5 years. Even if you pay the overdue amount, it will remain on your record but be marked as paid.
If you can’t pay the debt, your creditor may take further action to recover what you owe. They could:
- Obtain a court judgement, which will also be recorded on your credit file.
- Garnish your wages by taking a portion of your salary each week.
- Declare you bankrupt with a sequestration order if the debt remains unpaid.
Ignoring debt doesn’t make it go away. It’s better to face the issue and take action to prevent it from escalating.
Let’s Make a Plan
If you’re looking for a reliable way to avoid credit file defaults and pay off your unsecured debts within 5 years, we’re here to help. Explore our range of Debt Management Solutions, or call us on 1800 534 534.
Our Customer Success Specialists will take the time to understand your situation and tailor a solution that works for you.
