A default is an accumulation of missed credit payments that causes the creditor/lender to shut down an account. If you fail to make payments on your mobile contract consistently, for example, the provider may close your account. Credit reports record defaults, which can have a negative impact on credit scores and creditworthiness. It can be harder to get credit in future.
A default notice is sent to you if there has been a breach of contract. The lender will send you a written, formal notice to let you know you’ve defaulted on your loan or credit agreement. You will be informed mortgage lenders that accept defaults of the options available to you, including how to rectify your default. For example, you may pay the amount due, set up a repayment plan, or contact the lender for more information. You risk legal action if you do not rectify your default within the specified time frame.
Your credit rating can be affected by defaults. Impact will vary depending on severity, amount owed and when it happened. It is possible that a default will remain on your credit report for many years. This can affect future credit access. Visit our article on credit history for more information.
This may cause lenders to view you as an increased risk borrower and charge higher fees or interest rates. It can lead to higher payments each month, which could make it more difficult for you to manage your finances. Defaults in your credit report can also limit your ability to access credit or loans. You may be rejected by many lenders or offered less favorable terms. It can be more difficult to get a mortgage, a car loan or a credit card.
Your credit score could be considered when you apply for a rental or a new job. Your credit score could affect your employment prospects, particularly in certain industries like finance or law. Landlords will also view you more risky if your credit rating is low. You may have been rejected because they believe you will not be able to pay your rent in a timely manner.
If you default on your credit report, then interest rates may be higher. Some lenders may view you as a higher-risk borrower. It is possible that you will have to pay more in interest for the duration of your mortgage if you don’t have a good credit rating. You may also need to pay a higher deposit. It will allow the lender to mitigate risk on your mortgage. It could range from 10% to 25% of your property value.
If you have a low credit score, the application process could be stricter. It may be necessary to provide additional documentation or conduct affordability checks. These extra checks may take longer to process. You may need to wait for a long time to learn if your application has been accepted.
If you haven’t done so already, speak to a mortgage specialist or broker. Specialized lenders and brokers are more accustomed to providing mortgages for borrowers who have bad credit. They may charge higher fees and interest rates, but they are a good option for those who have been turned down elsewhere.
Other government schemes are available to assist people in getting on the property ladder. Check out the ‘Guide to government purchasing schemes’ for more information.