A default notice is a formal letter sent by a creditor in line with the Consumer Credit Act 1974. It is a warning that your account has fallen into arrears because you have missed payments or paid less than the agreed amount.
The timing of the notice varies depending on the creditor, but it is typically sent after you have missed between three and six payments. By law, the notice must include specific details:
- The arrears amount: Exactly how much you need to pay to bring the account back up to date. This means clearing the missed payments, not paying off the full balance.
- A deadline: You must be given at least 14 days from the date you receive the letter to pay the arrears or resolve the issue.
- Statutory wording: You can identify an official default notice by specific text at the top of the letter, which always includes: “Important you should read this carefully” and “Default notice served under section 87(1) Consumer Credit Act 1974.”
Note: Default notices apply to regulated debts. This includes most common unsecured debts, such as credit cards, personal loans, overdrafts, store cards, and hire purchase agreements.
Does receiving a default notice affect my credit rating?
The notice itself is not recorded on your credit file; it acts as a final warning.
- If you pay the arrears by the deadline: Your account will return to normal, and no default will be recorded on your credit file. However, the individual missed or reduced payments leading up to the notice will still be visible on your report and can affect your credit score.
- If you cannot pay the arrears by the deadline: The account will formally move into “default” status, and a default will be recorded on your credit file.
How long does a default notice affect my credit file?
A default remains on your credit file for six years from the date it is recorded, whether you pay the debt off later or not. During this time, it will be visible to lenders and will likely affect your ability to get credit.
After six years, the default is automatically removed from your credit file, even if the debt hasn’t been fully repaid. It is important to know that the removal of the default does not mean the debt is cancelled. You are still legally liable to repay the money.
What happens after an account defaults?
For most regulated agreements, creditors must issue a valid default notice before they can take further action. If the deadline passes and you cannot pay, the creditor may:
- Pass the debt to a collection agency to collect the money on their behalf.
- Sell the debt to a new company, which will then legally own the debt.
- Take legal action (such as applying for a County Court Judgment) to recover the money.
- Apply to a court to repossess goods if the debt is for a hire purchase agreement.
What should I do if I receive a default notice?
The most important step is not to ignore it. You have time to take action, and you have options:
- If you can pay the arrears: Contact your creditor right away to arrange the payment and secure your account.
- If you cannot pay the arrears: Speak to your creditor. Be honest about your financial situation. They may review your circumstances and agree to a temporary or long-term repayment plan.
- Seek independent advice: If you cannot reach an agreement or feel overwhelmed, seek regulated debt advice as soon as possible to explore your options.
This guide is for general information only and does not constitute financial advice.
Need Support?
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