The default table displays information about payments that are in serious arrears. In fact, they are likely to have been written off or passed for collection. Accounts that are not considered sufficiently in arrears to be judged a default are shown in the missed payments table.
Defaults, especially recent ones, are a predictor of bad debt. But credit unions like to give the benefit of the doubt. A loan might be justified if there's evidence that an applicant is making an attempt to pay down defaults. The reverse - where defaults continue to mount up - makes a decline more likely. This artcile explains how to tell the difference between these kinds of applicant.
When defaults are issued
Creditors issuing a written ‘default notice’ do not record an immediate default on a credit file. Debtors receiving a default notice have at least two weeks to get an account back on track. Lenders issue defaults soon after these notices.
The Information Commissioners Office recommends a default is not registered until six consecutive payments have been missed.
However, short-term loans lasting under 36 months might have a default registered sooner. Consequently, a default can appear after just three consecutive missed payments.
Creditors may also record a default in the following circumstances:
Repossession of the home
Cutting off services, including gas and electricity
Repossession of a vehicle
The debtor leaves an address without telling a creditor
Fraud is suspected
Insolvency, including bankruptcy, Debt Relief Orders or Individual Voluntary Arrangements
Overview
In the first column the date displayed. This is when the account had a default flag appended to it.
Type is the kind of credit account that is in default. Hovering over the letters reveals the name of the account. There’s a list at the end of this article.
Default balance is the balance when the default flag was allocated to the account.
Current balance is the outstanding balance on the account at the point the credit report was retrieved.
Satisfied means that the account has been paid off. But see below.
There are good defaults
When a default has been repaid in full it is marked as satisfied. In this example all the accounts have been cleared and the current balances are all zero.
Note: If an applicant completes a form of insolvency such as bankruptcy, a Debt Relief order or Individual Voluntary Arrangement, the defaults should also be marked as satisfied. If the dates of satisfaction are the same or close together, it is more likely that there has been some form of insolvency in the past.
Additionally a satisfied debt may have been partially satisfied by way of a ‘full and final settlement’. These clear part of the outstanding balance on the basis that the remainder will be written off.
In the example below the default balance is higher than the current balance. This shows that the applicant is making an effort to pay off the defaulted account:
In the next example, whilst there are a large number of defaults, there's evidence that the balances are being paid down. In fact, all but one account has a current balance lower than the default balance:
And there are bad defaults
In the example below there are five defaulted accounts. The two highlighted accounts have current balances that are higher than the default balance. In these circumstances the applicant has incurred additional charges or the balance is increasing for some other reason, e.g. an ongoing commitment to pay for gas or electricity; there can be a default but the supply hasn't been cut off.
The Account codes
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