When you apply for a loan, the potential lender will want to take a look at your credit score and history before granting approval for the loan amount.
Your credit score (or credit rating) is calculated using information about you within your credit report, and depending on which agency is used will fall within zero and either 1000 (Experian) or 1200 (Equifax). You can check your credit score for free using sites like Credit Savvy and Credit Simple (among others).
In your credit report is information such as how many credit applications that have been made in your name (loans, mobile phone plans, credit cards, etc.), repayment history, credit products in your name over the last two years, defaults and more. Basically, it’s a report that shows how responsible you are with your finances and whether you’d be a liability or not to loan money to.
One of the key items in the report that can have a real impact on securing a loan or not is the aforementioned ‘defaults’ you have against your name.
What are defaults and how can they affect you?
A default is an overdue payment (or debt) that equals $150 or more and has not been paid for over 60 days past the due date. This can be in the form of a phone or utility bill to a credit card or loan repayment, and once it’s been recorded will stay on your credit report for up to seven years.
Furthermore, when it’s been added to your credit report, even if you pay it, it’ll still show on there - it’ll just state that it has now been paid.
As you can imagine, lenders see defaults rather unfavourably in loan applications. So having this in your credit report for several years can be very detrimental to the outcome of any situation that requires a credit check.
Tips to avoid defaults
There are a few things that can help you steer clear of getting a default against your name:
Tip 1. Set up direct debit payments
We all have a lot going on in our lives, and things can sometimes slip our minds - including paying bills. Avoid missed payments by taking advantage of your bank or financial institution’s direct debit facilities. Just set and forget and don’t risk missing a payment accidentally again!
Tip 2. Don’t overspend
This may sound obvious, but a lot of people seem to find themselves in a bit too deep with their credit card(s). If you have one or more credit cards, keep front-of-mind that every time you use it, that’s $X more you’ll need to pay back eventually.
Tip 3. Make a budget
We’ve mentioned it a few times before, but this is where a budget really comes in handy. All of your expenses (phone/credit card/loan repayments) are clearly laid out in black and white, so you know if you need to make any sacrifices to cover the necessary bills to keep any defaults at bay.
What you can do if you have a default against your name
Before you stress out, there are some options available to you.
The very first thing we recommend is making sure the default isn’t an error. If you believe it is, get in touch with the credit reporting body (Experian/Equifax) and advise them of the error so they can take action with the creditor.
Unfortunately, though, if you have a legitimate default in your credit report there isn’t really any way to have it removed until the allotted time is completed.
We can help you with car financing even with a default
Should you have a default and are interested in getting finance for a new car, we may well be able to help. With over two decades of experience in the car financing industry, we’ve helped lots of Aussies just like you, find lenders who understand that a default doesn’t tell the whole story of an applicant.
So give us a call today on 1300 787 288 or send us an online message and one of our team members will be in touch to discuss your options soon. And why not take a look at what your potential repayments could be using our online car finance quote tool?