Many people may wonder if a late payment and a default are the same thing, or if there is a difference. As an applicant’s repayment history for the last 24 months becomes a part of lender decision-making, lenders can expect to field plenty of questions on managing repayments for a better credit score.
It is important that people understand that late payments are more influential indicator of distress than it has ever been. And defaults are demonstrations that an account was in arrears for an extended period of time.
What are late payments?
Late payments are between 14 days and 60 days and their impact on your credit score vary
If you pay the minimum repayment on your credit card or loan account after the “grace period”, which is more than 14 days past the due date, this can be recorded on your credit report as a “late payment”.
Late payments can be found in the Consumer Credit Liability Information section of your report.
It is unlikely that one late payment followed by making your repayments on time will significantly impact your credit score. However, a number of late payments could be an indication you are in financial stress and may negatively impact your credit score.
Late payments can be registered on small amounts of money
A late payment can be registered for any small amount that represents the minimum repayment on a credit account (like a credit card, a personal loan or a mortgage) at a point in time. Even a $5 account paid late is registered.
You have to wait 2 years before your past late payment history is wiped
Repayment history information is recorded monthly and can be held on your credit report for 2 years. This is displayed as a number indicating how many days in arrears an account was in a specific month.
What are defaults?
Defaults occur after 60 days and are considered a serious influence on your credit score
A payment later than 60 days is a default. This will negatively impact your credit score.
The default information is found in the Overdue Accounts section.
If you have a default on your credit report you can lessen the impact of the default on your score by making repayments on time. This more recent good behaviour can help improve your score.
Defaults are recorded on missed payment of $150 and over
A default can only be recorded on your report if you miss a payment which is more than $150 and is more than 60 days overdue.
You have to wait 5 years before a default is wiped from your credit report
A default is more serious and therefore remains on your credit report for 5 years.
What to do if you have late payments or defaults
If you have obtained a free copy of your credit report and discovered late payments or defaults that are dropping your credit score, there are a number of things you can do. Once you have established the difference between a late payment and default, it’s important to improve your credit score. To start improving your credit score you should:
- Set up direct debits for minimum payments on credit cards
- Schedule loan repayments for your payday
- Talk to creditors early if you’re having trouble meeting repayments
If you’re struggling with the debt itself and you need assistance:
- Consider speaking with a free financial counselor for advice
- Contact your creditors to discuss hardship arrangements if you’re having ongoing difficulties
- Contact a credit repair company to help you remove the defaults from your credit report
