When a lender is assessing a mortgage application they will access your credit check and look at any adverse credit, and it’s important that you are aware that even a paid default on your credit check can cause problems.
It’s a good idea to avoid defaults getting onto your credit report.
To avoid defaults being listed on your credit check you need to ensure you pay your bills before they become overdue. While this sounds quite reasonable, at times things can go wrong and a default can get listed on your credit file.
Even if you then pay the debt in full, the default will remain on your credit score for 5-years and can affect your ability to get credit.
When you apply for a large loan like a mortgage, the lenders assess your ability to pay and any history of missed payments, late payments and defaults do not look good and even a paid default can mean that they will decline your application.
The lenders refer to mortgage applications that have defaults as bad credit home loans.
What Leads To A Default Showing On Your Credit Score
Before listing a consumer default, the credit provider must take a number of steps such as sending two separate written notices to your last known address requesting payment and stating that the debt may be listed with a credit reporting body.
You are then issued a written notices by the credit reporting company and the debt may also be referred to a collection agency whom may contact you to try and collect the money.
You are given the opportunity to dispute a debt too if you do not believe that you owe the money.
Generally by the time the debt gets listed on your credit score there have been multiple efforts to make contact and get the debt paid.
In the past people often blamed the mail, saying they never received the notices or that the address was wrong and/or not updated. This excuse is harder to sell these days as most people can be contacted using email and sms messages so the likelihood of nobody being able to contact you about a debt is less.
But The Debt Is Paid!
Often mortgage advisers will do a credit check or be contacted by people who know that they have bad credit.
The credit may have been from a time when finances were not great, or sometimes may have been a surprise … maybe from a time where you have shifted and forgotten to notify the credit provider of the new contact address, or the default was lodged without you being told that there was an unpaid debt.
There are a lot of people that think that one a default is paid then the credit is fixed … that you will no longer be considered a high risk or bad credit applicant.
But even a paid default on your credit check can cause problems.
There are some very good non bank mortgage brokers in New Zealand and it’s worth contacting a specialist if you have some credit impairments.
How To Repair Your Credit Score
Having a default listed on your credit file can cause problems for years even after you pay the debt.
Any default will remain on the file for 5-years, and while a paid default looks better than an unpaid default it will still show up each time a credit check is done.
A default with a financial institution is deemed worse than a default with other companies.
Fixing your credit score is not easy and takes time and effort, but there are improvements that can be made and it’s something that is discussed in more detail within the Pathway to Home Ownership course.