Credit Score Basics > What is a notice of default?

What is a notice of default?

Wollit Team3 minute read · Updated 17th September 2024

A notice of default, sometimes called a default notice, is a formal letter from a lender telling you that you have missed payments on your loan or credit. Here is how it works and how it affects your credit score.

How does a notice of default work?

A notice of default is a letter sent by a lender to a borrower when you have not made your payments on time. The notice tells you that you are behind on your payments and lists the specific payments you have missed.

In the UK, this notice is required by law under the Consumer Credit Act 1974.

Here is how the usual process of receiving one looks like:

A default notice usually comes after you have missed at least three payments in a row. It’s very unlikely that you will receive a default notice after just one missed payment.
The notice will explain what you need to do to fix the situation, such as paying the overdue amount by a certain date.
It will also explain what might happen if you don’t take action, which could include the lender taking legal steps or marking a default on your credit report.
You usually have at least 14 days from the date of the notice to make the payment or talk to your lender about your options.

What types of debts can lead to a default notice?

Default notices can be issued for many types of debts, including personal loans, credit cards, mortgages, and other forms of credit covered by the Consumer Credit Act. It’s important to stay on top of your payments to avoid defaults.

How does a default notice affect my credit score?

Getting a default notice doesn’t by itself hurt your credit score. However, if you don’t settle your debt or find a solution, the lender will initiate the default process.

When a lender reports a default to a credit reference agency, it can lower your credit rating by up to 250 points.

It will also be visible on your credit file for up to six years. This can make it harder to get loans, mortgages, or credit cards in the future because lenders may see you as a higher risk.

Can I dispute a default notice?

Yes, if you think the default notice is wrong or if you have a good reason for missing payments, you can dispute it. Contact your lender to explain your situation and provide any proof you have. You can also seek help from a legal expert.

What should I do If I get a default notice?

If you receive a default notice, it’s important to take action. Here are some steps you can follow:

Read the notice to understand what it says, including how much you owe and when you need to pay it.
If you can’t pay the full amount, talk to your lender right away. Many lenders are willing to work with you to find a solution.
Consider talking to a debt management service. Nonprofits like StepChange offer free help and can guide you through your options.
Save all documents and notes from conversations with your lender. This information can be helpful if there are any disputes later.
If you can’t pay everything at once, ask your lender about repayment plans. They may offer options like longer payment terms or lower monthly payments.

The most important part is that you don’t ignore the default notice.

Ignoring a default notice can lead to serious problems. If you don’t respond or take action, the lender may register a default on your credit report, which can significantly hurt your credit score.

They might also take legal action to recover the money you owe. This legal action, if it results in a court order against you, will lower your credit score even more.

Finally, you should continue working on your credit history. The good news is that now there are many apps that can help you build and improve credit. One such app is Wollit.

Wollit works by reporting a fixed-fee monthly subscription as a loan repayment to all credit reference agencies. This helps you build a history of timely debt repayments, which is the main factor that matters for your credit score.

On top of this, Wollit can also report your monthly rent payment to Experian. This can add another line in your credit report that shows lenders you pay your bills on time, helping you reduce the impact of a a few missed payments or even of a default in your overall credit file.