If you fail to pay a loan agreement on schedule, your creditor may issue you a default notice by mail. This typically freezes your account and results in a notice to credit reporting agencies indicating you failed to meet your financial obligations. This can lower your credit score and make it tough to get financing in the future. If the default notice was entered in error, you may be be able to get it removed.
Understand the Consequences of Default
Several categories on a credit report help potential lenders understand your credit history. Categories include, among other things, how long the account has been open, your highest and lowest balances and whether you've had delinquent payments in the past 30, 60 or 90 days. A notice of default may appear in a "comments" or "account status" section of your report. While a delinquency means a slow or late payment that was eventually made, a default is more serious and indicates a failure to repay a lender.
Check Your Credit Report
Request a free copy of your credit report annually or subscribe to a monthly credit monitoring service. If you are unaware that an account is in default, a negative mark on your credit report may be your first indication of the problem. If you believe the default notice is an error, or you never received notice of impending default, contact your creditor directly. Ask, in writing, for a copy of the original notice and a copy of your original loan agreement terms. If the creditor can’t provide them or didn’t notify you of the default, you’ll have the paper trail necessary to both rectify the problem and dispute the entry on your credit report.
When the Default is Legit
If your lender had a legitimate reason to put your account in default, and it notified you of its intent in writing, it’s unlikely it will be willing to remove the default notice from your credit report. You can bring your account current as a show of good faith and then ask the creditor to update your report to show it has been settled or paid in full. You may even be able to have older default notices removed using this approach, particularly if you've remained in good standing with the creditor in the interim. This can help mitigate some of the damage potential future creditors will see when they review your credit history.
Defaulting or failing to repay student loans can be noted on your credit report like any other defaulted loan. Many student loan providers recognize the unique nature of post-graduation employment and financial challenges, and provide more leeway by offering deferment plans to eligible students to help them avoid default. Contact your loan provider for options if you find yourself unable to meet your financial obligations.
Contest the Default
If your lender didn’t notify you of impending default or can’t provide paperwork to show such a notification was sent to you, or if you don’t believe you are in violation of your loan terms, you can contest the default. Reference the terms of your loan agreement regarding default and follow guidelines for disputing the claim. In most cases you will be asked to show proof of on-time payment as well as write a letter describing why you are challenging the notice.
Contact Credit Reporting Agencies
If your lender fails to respond to your written requests in a timely manner, generally 30 business days, contact the credit reporting agencies directly and file a dispute. You’ll be asked to show copies of your correspondence with your lender that demonstrates your position and shows what you’ve done to try and rectify the situation directly. The U.S. Fair Credit Reporting Act requires that dispute claims be investigated within 30-45 days and inaccurate information on your report removed.
- New York State Department of Financial Services: Understanding Your Credit Report and Your Credit Score
- FTC.gov: Free Credit Report
- FTC.gov: How to Dispute Credit Report Errors
- My Fico.com: Glossary of Credit Terms
- FinAid: Defaulting on Student Loans
- Federal Trade Commission. "Making Payments to Your Mortgage Servicer." Accessed July 13, 2020.
- Federal Student Aid. "Student Loan Delinquency and Default." Accessed July 13, 2020.
- Experian. "What Happens If I Default on a Loan?" Accessed July 13, 2020.
- Experian. "What Happens If I Stop Paying My Credit Cards?" Accessed July 13, 2020.
- Federal Trade Commission. "Trouble Paying Your Mortgage?" Accessed July 13, 2020.
- Consumer Financial Protection Bureau. "Learn About Mortgage Relief Options and Protections." Accessed July 13, 2020.
- Federal Student Aid. "Coronavirus and Forbearance Info for Students, Borrowers, and Parents." Accessed July 13, 2020.
- Federal Student Aid. "Getting Out of Default." Accessed July 13, 2020.
Lisa McQuerrey has been an award-winning writer and author for more than 25 years. She specializes in business, finance, workplace/career and education. Publications she’s written for include Southwest Exchange and InBusiness Las Vegas.