Have you ever received a default notice? If you’re struggling to pay your bills, it can be a difficult situation.
You might have missed payments or not paid the right amount. Your creditor may send you a default notice, also known as a Notice of Default (NOD).
A default notice is recorded on your credit file and will stay there for six years.
It could make it harder for you to get credit in future because lenders check your credit file when they decide whether to lend money to someone like you.
Find out more about what it means to get a default notice?
What should you do if you get a default notice?
How does a default notice affect your credit file?
All your questions are answered below.
What is a default notice?
If you have missed three to six months’ worth of payments on your credit agreement, you may receive a default notice.
This means that the lender has sent a notice to inform you that there is a problem with your account and that they intend to collect payment from you as soon as possible.
A default notice is also known as a notice of demand or a default letter.
You have 14 days to repay any amount you owe before a default or a ‘black mark’ is added to your credit file.
However, the notice will also stipulate what action you need to take to try and resolve the situation.
Should I take the default notice seriously?
Yes absolutely. The default letter or the default notice shows that your creditor or lender is making plans to take more serious action against you to recover the payments, and if the default notice does happen then this will mean that it will stay on your credit file for more than six years.
What happens when I get a default notice?
The default notice will usually be written as a formal letter, detailing that you have broken the terms of your agreement with your creditor or lender. It should include the following information:
- Your name and address
- Your creditor’s detail
- Details of your credit agreement and how it was broken
- What you should do to try and pay it back
- The consequences of what will happen if it isn’t paid back
Remember, if your credit agreement is regulated by the Consumer Credit Act (1974), your lender must have issued you with a default notice before they can take legal action. You letter should state that it has served under section 87(1) of the Consumer Credit Act 1974.
What type of credit can I get a default notice for?
A default notice can be issued to you for the following credit:
- Bank loan
- Car finance agreement
- Utility bills
- Mobile Phone bills
- Retail credit agreements
- Catalogue debts
- Furniture payment plans
When should I receive a default notice?
Your creditor should only issue you with a default notice if you have missed 3 to 6 months’ worth of payments. You should not receive a default notice if you have missed one or two payments.
Can I stop the default notice from going through?
If you pay the default or comply with the terms detailed in the repayment agreement within the given time limit, the debt will be satisfied, and the creditors will not need to take further action.
They usually give you 14 days to settle the arrears so it is important to check your default letter to know exactly what you need to do to stop anything further from happening.
What will happen if I ignore the default notice or don’t pay off the arrears?
If you don’t respond to the default notice, then the creditor you owe money can do the following:
- Stop you from using any more credit and cancel your account with them
- Start legal proceedings against which could result in a Count Court Judgement (CCJ)
- Passing on the debt to a debt collection agency
- Start to plan to repossess any goods that are included in the agreement, for example, if a car was on finance then they would repossess that.
What should I do if I receive a default notice?
You only have 14 days from receiving the notice to contact your creditor and arrange payment of your arrears.
A default notice is a warning and is being put in place to prevent you from damaging your credit score. Go through the points below and act before it is too late:
- Check all your personal information is correct such as your name and address
- Make a note of the amount that is due and details of the payments you have missed. It might be worth just checking your bank account to see if any errors have been made.
- Contact the company you owe money to. It is likely that they will ask you to pay the full amount of the payments you have missed.
- If you are unable to afford the missed payments, then it is still vital that you speak to your creditor as they may be able to set up an affordable plan for you to pay back the money you owe.
How bad is a default notice?
A default notice is a very important warning. It is something that no one wants to receive but it is very important that you act on it as soon as possible because after the 14-day window your credit agreement will be terminated.
This is when things start to get serious…
- The default will be registered on your credit file for six years if you don’t act within the 14-day notice period
- Your creditors will demand you to pay the entire balance, or they could start court proceedings against you.
- Your creditor could pass on the debt to a debt collection agency that could persistently send you letters of your unpaid debt.
- Your creditors could start proceedings to recover the debt and may result in CCJ (County Court Judgement) made against you. A CCJ will have a massive impact on your credit file.
- If you owe one creditor more than £5,000 then they can apply to make you bankrupt after issuing you with a default.
Does the default affect my credit file?
Yes, a default does affect your credit file for six years. However, that doesn’t mean you are completely helpless as there are ways to improve your credit file.
Even though a default shows to creditors that you have broken the terms of a credit agreement and it will reduce your credit score there are things that you can do to try and improve your credit rating. Find out ways in which you can improve your credit rating.
- Pay off the default – While paying off your default after it has been issued won’t change your credit score it does show to creditors that you have settled your debt.
- Notice of correction – You can have a notice of correction added to your credit file to tell them why you got into arrears in the first place and if it was a one-off due to an illness which meant you had to take time off work.
How much will a default affect my credit score?
For the first 12 months of the default being issued, a default can drag your credit score down by 350 points, however the years following on from this your score will improve and recover. A credit score value is from 0 to 999. 0 is the lowest or very poor and 999 is the highest or very good. You can get a free credit score check by signing up to the Experian website.
Can remove a default notice from my credit file?
You can only have the default removed from your credit file if the default was issued in error.
Also, if you paid for the default within the 14-day period and you have evidence of this then you can have it removed.
In addition, if you have only missed one or two payments and are not in three to six months of arrears then you could petition the creditors to remove it.
Can I get a mortgage with a default notice?
One of the biggest worries to many people is getting a mortgage with a default notice.
Even though a default notice does affect your credit score, there are still mortgage options available to you.
Some lenders would prefer a cleaner credit history however there are other mortgage providers who are happy to approve applicants with various defaulted credit accounts.
It also depends on the severity of the default or whether you have a satisfied default.
Are there ways I can improve the effects of a default notice?
Although a default notice can have a damaging effect on your credit rating and can’t be removed, there are ways you can improve your credit score.
- Get on the electoral register – Register yourself to vote at your current address as the longer you are on the electoral register, the better it looks to lenders and will boost your credit score.
- Keep up with payments – If you have other credit you need to pay off, try and pay them off on time. Try and budget your outgoing and incoming expenditures. Download our free budget planner so you can stay one step ahead of your financials.
- Don’t apply for credit – Try not to apply for credit for up to 6 months.
Find out more ways to improve your credit rating.
Can I be taken to court if I receive a default notice?
Yes, you will be taken to court if you don’t respond to the default notice.
You will receive a letter of claim which will include the amount of money you owe including interest, a financial statement, an information sheet explaining what you should do next and details of organisations that can help you deal with your financial difficulty.
What if I don’t respond to the letter of claim?
If you choose to ignore the letter then court proceedings will go ahead, and then the next form of correspondence will be a claims pack that comes directly from the court. If you don’t respond to this you will then be issued with a CCJ, which will stay on your credit file and reduce your credit score significantly. As well as this you may be liable to pay for the court costs too.
Where can I get help to sort out my financial situation?
If you are finding yourself struggling to keep up with your repayments, then it’s time to act and get help. There are various debt solutions to suit your needs. Find out more by visiting our debt plan section on the Money Advisor site.