How does a default impact my credit report and score? | finder.com

What is a default on my credit report?

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

When you borrow from a lender and fail to pay back the debt, a default can follow you around like a black cloud. Learn how to keep this negative listing from affecting your credit score.

Life gets busy, bills fall behind and your financial focus lands elsewhere. No one plans on missing payments on their loan or credit card, however, it happens pretty often to consumers in the US.

The rules for defaulting on credit are different for each provider and type of debt. That’s why we’re going to clear the air and inform you about what type of accounts you can default on, how long it takes for an account to be listed as default and everything else you need to know.

What is a default account on my credit report?

A default on a credit report is listed when a consumer has borrowed money from a lender and has not followed through repaying the debt under the terms of the agreement.

Defaulting can be the result of making multiple late payments, missing consecutive payments or not making payments at all.

What kind of debts can I default on?

You can go into default on nearly every type of credit by not making your payments. Here are the most common accounts that consumers default on:

  • Student loans
  • Credit cards
  • Home loans
  • Auto loans
  • Personal loan (secured and unsecured)
  • SBA loans
  • 401(k) loans
  • Payday loans
Deferment is different than defaulting

Deferment is when you come to an agreement on a payment plan with a credit provider to avoid defaulting. Lenders would prefer that you defer your payments rather than default because it’s a sign of good faith that you plan to pay back the debt.

How long does a default stay on my credit report?

This type of black mark can stay on your credit report for up to seven years.

When you apply for financial products, lenders and providers will pull up your credit report and see that a default has been listed on a past account. This will likely flag you as a risky borrower and result in a denied request for credit.
Get your free credit report

What are the consequences of default?

Once in default, the status of your account is typically reported to the three major credit bureaus to list on your credit report. It’s likely that your account will be sent to an in-house collections agency or sold to a third-party to collect the debt.

Following that, other consequences from defaulting on a loan can include:

  • Drop in your credit score
  • Unhealthy credit report
  • Wage garnishment
  • Home foreclosure
  • Seized assets
  • Accumulate late fees and interest
  • Have your car repossessed
  • Impact your ability to get credit in the future
  • Court appearance to settle the debt
  • Lawsuit
  • Have the account go into collections
  • Federal and state tax refund withheld

Why does it matter if my credit score dropped?

I have a default on my credit report, what should I do?

Take immediate action to find a solution. Start off by contacting your provider and find out if your account has been sent to collections already. If the credit provider hasn’t taken that action yet, communicate that you’d like to settle the debt directly and the lender may work with you to create a payment plan.

Other ways to deal with a default are:

  • Pay the account in full. It’s not very common, but some creditors will remove the negative listing on your credit report if you pay the debt in full — this is called “pay for delete.” If you don’t negotiate your options for paying back the debt, you’ll never know.
  • Settle the debt. Creditors will sometimes settle for less than what you owe in order to avoid taking a complete loss.
  • File bankruptcy. Before you consider declaring bankruptcy, know that it stays on your account for up to 10 years. Filing bankruptcy should only be an option after you’ve exhausted all other alternatives of dealing with default.

Get help repairing your credit

Details Features
Self Lender — Credit Builder Account
Self Lender — Credit Builder Account
Savings account that helps you build credit.
  • No hard credit inquiry
  • Available in all 50 states
  • It typically takes 60 days for new accounts to appear on credit reports
Go to site More info
The Credit People
The Credit People
Professionals work with you to clean up your credit and raise your credit scores. Cancel anytime.
  • 7-day trial for $19
  • Get access to your credit reports
  • Most customers see results within 2 months
Go to site More info
CreditRepair.com
CreditRepair.com
Online credit repair service.
  • Credit report repair
  • 24/7 credit monitoring and alerts
  • Score tracker and analysis
Go to site More info
CuraDebt: Tax Debt Relief Free Consultation
CuraDebt: Tax Debt Relief Free Consultation
Debt relief professionals helping individuals and small businesses nationwide.
  • Free consultation and 100% confidential
  • 15+ years experience
  • Debt relief help for credit cards, medical bills and taxes
Go to site
The Credit Pros: Legal Credit Repair
The Credit Pros: Legal Credit Repair
Online credit repair service that gives free consultations.
  • Delete inaccurate information on your credit report
  • Practical, honest credit advice from professionals
  • Get help setting realistic, reachable credit goals
Go to site More info
Lexington Law Credit Repair
Lexington Law Credit Repair
Law firm that specializes in credit repair.
  • Remove incorrect listings from your credit file
  • Get free access to your credit report
  • Personalized credit repair services
Go to site More info
CreditFirm.net
CreditFirm.net
Professional credit repair service that can help you create a step by step action plan. Cancel anytime.
  • Free credit consultation
  • Over 15 years of credit repair experience
  • Get help optimizing your credit file
Go to site
Details Features
myFICO
myFICO
Get quarterly access to your most widely used FICO® Scores and a 3-bureau credit report
  • Get quarterly access to your most widely used FICO® Scores
  • Credit report change alerts
  • FICO® Score analysis
Go to site More info
Experian Credit Report
Experian Credit Report
Get your credit report and FICO score for just $1 with enrollment in Experian CreditWorks credit monitoring. Cancel anytime.
  • 3 credit reports
  • Track your FICO® score
  • Easy to use dashboard
Go to site More info
TransUnionCredit Report
TransUnionCredit Report
TransUnion credit score, monitoring and identity theft insurance.
  • Unlimited updates to your TransUnion credit score
  • Up to $1,000,000 in identity theft insurance
  • Personalized debt analysis
Go to site More info
Equifax Business Credit Monitor
Equifax Business Credit Monitor
Monitor your key business relationships to protect your company from losses.
  • Bankruptcy Alert
  • Derogatory Alerts
  • New Inquiry Alert
Go to site
GoFreeCredit.com
GoFreeCredit.com
$1 for a seven-day trial to get access to your credit score and credit report from TransUnion.
  • Credit reports from all 3 bureaus
  • Email alerts when your credit report changes
  • Up to $1,000,000 in identity theft insurance
Go to site More info

When can a lender list my account as default?

Typically before a default, the provider will contact you reminding you to pay your debt. After a few of these reminders, lenders have the tendency to get pushy and increase the frequency of calls to get you to pay back what you’ve borrowed.

Listed in the table below are grace periods and timeframes that lenders typically follow before listing your account as default.

Type of loanDays until account goes into default from last paymentGrace period
Credit card1801 missed payment
Student loan27090 days
Personal loan90Varies by provider
Auto loan1-30Varies by provider
Home loan3015 days

Keep in mind that this all depends on your lender and what kind of loan you default on. Some providers will try to contact you for months before listing your account as default while others will take action if you miss one payment.

My debt is in collections, what should I do?

At this point, your credit has likely started to slump. Your next move should be directly negotiating with the collection agency to reduce the debt.

When renegotiating, always keep everything documented and in writing. If the collector wants to speak over the phone, decline the call and continue the negotiation via mail. Once you’ve come to an agreement with the collection agency, pay the debt and start rebuilding your credit.

Did you know?

Getting calls from lenders and debt collectors can be overwhelming. And even though you can’t stop the original creditor from calling you to collect a debt, you can stop a third-party collection agency from calling you by sending them a cease and desist letter.

How to avoid credit default

There are preventive actions you can take to avoid a default listing on your credit report:

  • Make on time payments
  • Set up an autopay
  • Create and stick to a budget
  • Inform your lender of any name, phone number or address changes
  • Borrow within your means
  • Keep your debt to a minimum and try to pay it in full each month
  • Reach out to the lender if you’re having trouble managing your debt

Also, read the terms and conditions of your financial product before signing your name on the dotted line so you fully understand the agreement between yourself and the lender. Some consumers skip this step because it seems time consuming, but it’s worth the it.

Bottom line

Defaulting on an account can cause your creditworthiness to take a hit and affect your ability to borrow in the future. By creating a budget to manage your finances responsibly, you’ll know exactly how much debt you can realistically take on and avoid any credit defaults in the future.

Though dealing with credit default can be tough — the good news is that it’s manageable. Reach out to your lender and try to settle the debt in a fashion that satisfies the both of you.

Start your credit repair journey

Kyle Morgan

Kyle Morgan is a producer for finder.com who has worked for the USA Today network and Relix magazine, among other publications. He can be found writing about everything from the latest car loan stats to tips on saving money when traveling overseas. He lives in Asbury Park, where he loves exploring new places and sipping on hoppy beer. Oh, and he doesn't discriminate against buffalo wings — grilled or fried are just fine.

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Privacy and Cookies Policy and Terms of Use.
Go to site