Credit Building > How to improve your credit score after a default

How to improve your credit score after a default

Wollit Team4 minute read · Updated 1st July 2024

A default happens when you consistently miss payments on a loan or another kind of credit, and the lender closes your account.

The keyword here is "consistently" – a lender won't put you into default for being a few days late or missing just one payment.

A default is dangerous for three reasons:

1. The lender might take you to court to recover the unpaid amount.
2. The default is noted on your credit report, warning lenders that you are having trouble meeting your financial commitments.
3. Because of this, the default lowers your credit score and makes it harder to get new credit.

How will defaults affect my credit score?

According to Experian, a default can reduce your credit score by up to 350 points out of a maximum of 1000.

The worst part is that it doesn't even matter how large the debt is – an unpaid £20 mobile bill will hurt your credit score just as much as a £2,000 credit card one.

Over time, though, the default tends to be less important.

According to Experian, once a default is more than two years old, the impact on your credit score will only be about 250 points. After four years, it will drop even more, to 200 points.

How long will a default stay on my credit file?

A default will stay on your credit file for six years, regardless of whether you pay off the debt.

Can I remove a default from my credit file?

The only way to remove a default from your credit file is if you can prove that it was an error.

Some examples of errors:

• The lender reported the same missed payment twice.
• The lender mismatched your record with someone with a similar name or address.

If you think the default was a mistake, you should dispute it with the lender. They'll remove the default from your credit report if they agree that the default was a mistake.

You can also contact the credit agencies (Experian, Equifax, and TransUnion). However, keep in mind that they don't actually have the power to remove it from your file. They can only mediate between you and the lender.

How can I reduce the impact of a default?

Once a default is marked on your credit file, you can't remove it unless you can prove it's an error. Otherwise, it will stay there for six years.

However, you can do a few things to reduce its negative impact:

1. Try and pay off what you owe as soon as possible. Once it's repaid, the default will be marked as "satisfied". This looks much better to lenders.
2. Add a Notice of Correction to your credit report – this is a 200-word note in which you can explain what happened. Lenders will be more likely to understand if they know you had a serious reason to default – for example, you lost your job or got sick.
3. Wait. An older default is less important to lenders. After a few years, you can get approved for credit again.

And, of course, keep working on your credit score. An improving credit score can reduce the impact of a default somewhat.

Will my credit score improve faster if I pay off the default?

Not really – the default will still be visible on your credit report. That being said, a defaulted debt that's been paid off will show as "paid" or "satisfied" on your credit report.

As we said above, this looks much better to lenders – it tells them that you're responsible and that you cleared what you owed.

How can I repair my credit score after a default?

You can do plenty of things to improve your credit score after a default.

First, register to vote at your current address.

• It can add up to 50 points to your credit score.
• You can do this even if you share a flat or live with your parents.
• Avoid moving home too often if you can – lenders may think you have trouble paying rent.
• You should also get your Statutory Credit Report from all three credit reference agencies and check that all the addresses recorded there are correct. Even a typo can hurt your credit file - if you spot one, submit a Notice of Correction.

Second, be careful with your existing debt:

• Try repaying as much as you can.
• Keep making regular payments on time. It also helps you avoid another default.
• Keep your credit utilisation low. This is how much of your credit limit that you use. For example, if you have a limit of £2,000 and used £1,000 of it, your credit utilisation is 50%. Experian says to keep it under 25%.

Third, don't try to get new loans too soon:

• Not making any credit applications for 6 months can add up to 50 points to your score, while making more than two loan applications in less than 6 months can hurt it.
• Also, always use an eligibility checker before applying. These use soft checks and don't hurt your score.

Next, build your credit history:

• Keep old accounts open and show a long credit history. It's a big factor for all three credit reference agencies (CRAs).
• If you have a credit card, keep it for more than five years. This can add another 20 points to your score.
• Get a credit-building credit card. These cards are meant for people with bad or no credit history. A credit-building card usually has very high interest rates and fees – but if you use it for just a few small purchases and pay it off in full each month, it can be a good way to rebuild credit.
• Download a credit-building app like Woolit. Unlike a credit card, which can charge outrageous fees, Wollit reports your monthly subscription as a loan repayment, helping you safely rebuild your credit score.

Finally, some pro tips:

• Pay your car insurance in monthly instalments. This can add another 20 points to your score because it is a credit agreement between you and your insurance provider. But be careful – interest rates can go up to 50% per year.
• Sign up for Experian Boost. Experian Boost connects your bank account with your Experian account and checks how regularly you make payments—even to things like Netflix and Spotify. Experian says it can add another 66 points to your Experian credit score, but lenders can see both your real and "boosted" score. We're not sure what lenders make of it, but it's free and probably can't hurt.
• Check your credit report regularly to avoid becoming a victim of fraud. You can also sign up for an identity fraud monitoring service—both Experian and Equifax sell one. Experian even lets you "lock" access to your credit report so fraudsters don't add hard checks to your credit score by applying for loans in your name.
• Download a rent reporting app. If you pay rent regularly and on time, there are a few apps that can report this to the credit agencies. Wollit, for example, reports your rent payments to Experian, helping you show lenders that, despite a default, you're a financially responsible person.

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