Paid and unpaid defaults

What is a credit file default?

A credit file default is when you have an overdue account such as a loan, credit card, utility bill or phone contract. It is classed as being overdue if the payment is 60 days late OR if you have been unable to be contacted. Credit file defaults are lodged on your credit file with Veda Advantage.

Paid or unpaid default?

Defaults can show up on your credit file as paid, unpaid or settled (you made an agreement to pay part of the debt).

Paid defaults remain on your credit file and are not removed. It is important that you are aware of all your defaults and what status each one is at to avoid applying for a loan and being turned down due to your bad credit history.

How do lenders view defaults?

The banks find that borrowers often say to them that they didn’t know they had a default. In lenders’ experience, they are often lied to about this and will always assume that you did know about the default.

We always recommend that you apply with lenders that can accept defaults rather than major banks that will decline if you have a poor credit history. Please enquire online to speak to one of our specialist mortgage brokers who can get your loan application approved with the right lender for your situation!

How to apply for a home loan if you have defaults

There are ways around applying for a mortgage even if you have defaults, or have had them in the past. A few common options would be to:

  • Provide a default explanation letter
  • If possible, pay the default and get your lender to mark it as paid on your credit file before you apply for a loan
  • Apply with a lender that can accept borrowers with defaults

Please enquire online and find out how you can get a home loan approved.

Is this different to defaulting on your home loan?

Yes, defaulting on your home loan means if you have a home loan and you are “in default” meaning you haven’t meant the conditions of the loan contract. Normally this is because you haven’t made the payments on time.

View our arrears / missed payments page for more information on having a home loan in default.

Will the lender know I have a default?

Yes, the lenders will do a credit check and will find out about any defaults that you have. You should tell the lenders upfront about your defaults otherwise they will not be pleased when they find out that you have lied to them.

If you are applying for a home loan with a default then you need to plan and submit your loan with evidence to show the lender that you are a good credit risk.

Does the amount of the default matter?

Different default sizes, amounts and the time they are paid can mean that you are eligible for different types of loans. Therefore you should be aware of the following terms:

  • Clean credit - No defaults, ever.
  • Near prime - Small paid default less than $500 paid over 1 year ago. Most lenders can approve a loan for you without any problems.
  • Below average - Paid default < $1,000 paid over 6 months ago. Some prime lenders and major banks can lend you up to 80% on a case by case basis. Over 80% may be available in some cases depending on the situation.
  • Bad credit - >$1,000 in defaults, all paid. You would likely have to apply with a specialist lender. If you have a very good story backed up with evidence then you may be able to borrow 80% of the property value with a major bank.
  • Very bad credit - >$1,000 in defaults, unpaid. You must use a private, specialist or non-conforming lender.