Managing debt and payment month on month can be challenging. You may often find that you miss out on payments, which could hurt your credit in the long run.
The real problems are likely to start when you begin to miss a series of payments or fail to pay the full amount of an instalment over several months.
When this occurs, you risk a default notice from the creditor or creditors with whom you hold the loan, which degrades your credit rating and adds to the possible financial stress. It could also deny you the chance to secure a home loan, should you be looking to buy a home.
Most lenders may not lend to people with paid defaults. However, some flexible lenders in the market will consider such applications and work with you despite any poor credit ratings. Take note of the following essential factors before applying for your home loan, to ensure that you get the best deal possible.
What is a Credit File Default?
A credit file default is a record on your file which lists any overdue accounts such as utility bills, phone bills, loans, or credit cards. If the payment is 60 days late or if the creditor has been unable to contact you, they will issue a default notice.
Making sure that the addresses on your credit file are up to date goes a long way towards preventing default notices on your record. In the law, this is the responsibility of the borrower, and any defaults lodged on your credit file can be accessed by lenders when you apply for a loan facility.
A default will remains on your credit file at the Credit Reference Bureau for five years or seven years if the reason for the lodge was because the lender couldn’t contact you. Note that even if you pay a default, it is not automatically removed from your credit file.
How Lenders View Different Default Types
A current default is one that lists any overdue amounts you have paid but also lists the account as still open. Take, for instance, if you had a credit card instalment that was overdue, but which you paid. The default lodged on the credit file would list as ‘current’ because the credit account is still open and in use.
Current defaults are viewed favourably much in the same way as paid defaults.
A settled default refers to any defaults under a debt repayment arrangement that has been approved by the lending firm. Often, lenders will accept payment on a percentage of the debt, in exchange for not pursuing the remaining debt.
Although it is seen favourably much in the same vein as a paid or current default, it isn’t as favourable as a default that has been paid in full.
A clearout default is listed with the note that the lender has tried to contact you several times and has been unsuccessful. Clearouts remain on your credit file for seven years instead of 5 years and are not viewed favourably by lenders.
Most unsuccessful contacts result due to the lender not having a current address on your credit file. It is the responsibility of the borrower to update all their addresses, even if they move abroad for a period, to avoid these situations from happening. Lenders are incredibly wary of borrowers with clearout defaults and will take time before approving such loan applications.
Paid defaults refer to payments that were overdue and paid in full to the creditor.
These defaults remain on your credit file for five years, even if they have been paid in full. Lenders will view them favourably and will most likely approve loans against such applications.
Applying for a Home Loan with Paid Defaults
To increase the chances of your home loan approval, take note of and use these simple steps:
- Save up at least 10% of the house purchase price or more if you can manage it
- Pay any unpaid defaults; contact the creditor and request that they mark them as paid on your credit file before the application
- Provide evidence to back up the cause of the defaults on your credit file
- Provide a default explanation letter
- Choose flexible lenders like Credit Made Simple that can accept borrowers with paid defaults
Contact Credit Made Simple to Help You Secure a Home Loan
At Credit Made Simple, we are a flexible lender and happy to approve your home loan application even if you have paid defaults Should you wish to learn more about getting a home loan despite having paid defaults do reach out to us on 1300 705 820 or contact us on our website.
Our friendly and qualified team will walk you through your options and help you to find a good deal, to make sure that you do not miss out on the opportunity to own the home of your dreams.