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10 questions about defaults answered

By: Louise Mosqueda0 comments

It’s surprising to hear that despite the risk, many Australians still don’t fully recognise how defaults can impact their credit reputation.

It may seem scary at first, but understanding what they are can help you overcome the challenges they pose and deal with them to your advantage. To provide more information, we take on some of the burning questions people have about dealing with defaults.

[bctt tweet=”We take on some of the burning questions people have about dealing with defaults.” username=”AlphaFinanceAU”]

What is a default?

A default or an overdue debt is a consumer credit amounting to more than $150 and late by more than 60 days. These debts range from credit card, personal loans, and even utility bills. If your debt is less than $150 and is not overdue in 60 days time, it won’t be listed on your profile. You will still have time to pay it off.

When your debt defaults, your credit provider lists the following on your profile:

  • Credit provider and type of account
  • The amount listed as the default
  • Date when the default will be removed from your report

Here are some of the most common questions people asked about defaults.

  1. What are the types of defaults?

Lenders view different types of defaults in different ways. By knowing their differences, you can discuss your situation in detail if you’re applying for a loan. Here are some of the most common defaults people get:

  • Utility defaults

It’s one of the most common defaults. Whether it’s your electricity, water, or phone bill, failing to pay for it for months at a time can lead to a utility default. It is almost impossible for folks with this default to get approved for a loan, as lenders will require you to handle and resolve these issues first before even considering you.

  • Lender defaults

A lender default happens when you take out a loan and fail to make repayments on time. Whether it’s because of a sudden job loss, a decrease in income, or personal problems such as marital or health issues, there are different reasons why you fall into this kind of default. You need proper paperwork stating the valid reason why you were unable to pay your lender on time, especially if you are looking to apply for another loan.

  • Court judgments or writs

Court judgments happen when you fail to settle loan obligations with a financing company. Other ways to get a court judgment is the failure to pay alimony or child support. It is impossible to get a loan with writs over your head, which is why it is highly recommended that you first settle everything before even thinking about a new loan.

However, if your case is still up for appeal, there is a chance to get approved by a lender. You need to make sure you have all your legal documents in order.

  1. How long will a default stay on my record?

Your defaults will stay on your record for up to five years. It won’t be removed simply because you have settled it, however, your payments will reflect on your record. It’s essential for some lenders to see that you’re making payments towards your defaults for them to approve your loan.

If you only have one default on your credit profile, you can expect to see an improvement upon removal. However, it’s a different case if you have more than one default on your file.

  1. How do I know if I have a default?

Lenders cannot automatically default you when you miss a payment. There is a system in place that makes sure that you, the borrower, have enough time to make the payments or get in touch with the lender.

First, a notice is sent to your last known address as soon as the payment is overdue. You will be requested to make the payment as quickly as possible.

If you weren’t able to pay, a second notice would be sent within 30 days after the first one is delivered. It is a written warning telling you that if you fail to pay, the lender can report you to a credit reporting body like Equifax.

Failing to make payments will result in default 14 days after the second notice has been sent to your address. So, be aware and track your payments to avoid missing one. You can also get in touch with the lender and make mutual arrangements to avoid getting a default.

  1. How does a default affect my credit rating?

Getting a loan within the next five years will become harder if your credit rating gets a default.

When applying for a loan of any kind, lenders will take a look at your file to gauge whether or not you are the right candidate for their money. The chances are high that they are going to be reluctant to approve your application if they learn about your defaults. Your records will hinder them because they have seen that you have failed to make payments on a previous loan.

  1. Can I get a loan if I have a default?

Most lenders are hesitant when they see that you have a default on your profile. It tells them that you’ve had money troubles before, and there is a chance that it can happen again while you’re paying back the loan if they approve your application.

[bctt tweet=”Can I get a loan if I have a default? Yes, there is still hope.” username=”alphafinance”]

To answer the question, yes, there is still hope. If you do manage to settle your defaults, lenders will be more than willing to give you a chance. It means you can easily apply for a loan or even car finance and get approved.

Make sure that you pay your defaults before applying for any loans for a better chance of approval. Now, if you really need a loan, there are still ways to get it even with your current financial situation. Here are some of the loans you can apply for:

  • personal loans
  • home loans
  • cash loans
  • bad credit loans

These types of loans have different terms and conditions, so it’s best to learn as much as you can before taking the plunge.

  1. What will the lender know about my defaults?

Defaults appear on your credit report for up to five years. During that period, lenders can see the default on your report with an indication of whether or not you managed to pay it off.

They won’t take a second look at your profile if they see that you were unable to make any payment. However, there’s a chance for special consideration if they see that you are making an effort to make payments and reduce your debts.

Make sure to keep track of each default if you happen to have more than one and if you’re in the process of resolving them. Know the status of each so that you don’t accidentally apply for a lender who will turn you down right off the bat.

  1. Can I hide my default from the bank?

No. You cannot hide your defaults from the bank. Everything regarding your finances will be reflected on your credit profile, so even if you lie during your application, they will learn about your defaults as soon as they check your credit profile.

If you have defaults, be upfront and tell about it to the lenders you are applying to. Being transparent puts you in a good light and could increase your chances of approval.

  1. How can I reduce the negative impact of a default?

First, you should make an effort to pay it back because your efforts to make these payments will also reflect on your profile. When applying for a loan, lenders will see the status of your default, and if they see that you’re making payments or have cleared it up, they are more likely to approve your loan.

If you fail to make the payments, lenders will likely decline your application. So, keep that in mind.

  1. Can I get a free copy of my credit report?

Yes, there are credit reporting agencies that can provide a free copy of your credit report like Equifax. There are plenty of benefits and features that go along with getting your credit score, which includes:

  • Better preparation before sending your loan application. By knowing your credit score’s current condition, you can identify beforehand which lenders are likely to approve your application, lessening your chance of rejection.
  • Making improvements to your credit reputation. When you know what’s on your report, you can improve your finances and settle your defaults to make your profile more presentable to lenders.
  1. What if I find an error on my credit report?

Always go over your credit reports carefully. Check the loans and debts listed and make sure that you actually took it out. An excellent way to stay on track is to keep all the receipts and any other documents related to your loans and debts.

You can make changes to your credit report or add comments as needed. It is free to make amendments to your credit report as required, but it’s only done if the listing in question is proven inaccurate or out of date.

Some of the common mistakes on credit reports include credit report errors such as:

  • Incorrect credentials e.g. your home address or date of birth
  • Incorrectly listed debt

These mistakes are easy fixes. All you need to do is get in touch with the credit reporting agency and inform them of the errors.

However, there are instances wherein people notice loans or credit on their reports that they have no record or memory of taking out. This could be a case of identity theft. If you find such an error on your report, it’s best to report it to the proper authorities as soon as possible.

To prevent identity theft, follow these simple steps:

  • Never give personal details to anyone
  • Check your credit reports and bank statements carefully
  • Shred any document with personal information before throwing them in the bin.

With this new knowledge, you can improve your current credit standing. However, prevention is always better than cure. So, make sure to pay your debts on time every time to avoid the hassle of a default.

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