A default indicates that you have failed to meet the repayment terms of a credit agreement.
Below are reasons why a credit account might be reported as defaulted on your Capitalise credit profile:
What constitutes a default?
A credit account is typically marked as defaulted when you have persistently failed to make payments as per the agreed-upon terms. The specific timeframe leading to a default can vary depending on the lender and the terms of the agreement, but it usually involves several missed payments over a period of months without any resolution or agreed-upon alternative arrangement.
Common reasons for a defaulted credit account:
Prolonged payment failure: The most common reason is a sustained inability to make the required payments on a loan, credit card, line of credit, or other credit facility.
Breach of contract: Violating other significant terms of the credit agreement can also lead to a default.
Formal demand for repayment not met: If the lender has issued a formal demand for the outstanding balance, and you have failed to pay within the specified timeframe, the account can be marked as defaulted.
Insolvency proceedings: While distinct, the initiation of certain insolvency proceedings can also trigger a default status on outstanding credit accounts.
How a default impacts your credit profile:
A default is a serious negative marker on your business credit profile and has several significant consequences:
Severe credit score reduction: a default will substantially lower your credit score
Negative reporting for several years: defaults typically remain on your credit report for a significant period (e.g., six years from the date of default), even if the debt is eventually settled.
Limited access to future credit: lenders and suppliers view businesses with defaults as high-risk borrowers.
Potential legal action: the lender may pursue legal action to recover the outstanding debt.
What to do if you see a defaulted account:
Review the details: on your Capitalise credit profile, carefully examine the details of the defaulted account, the date of default, and the outstanding balance.
Understand the circumstances: reflect on the reasons why the account may have reached default status.
Address the underlying issue: take steps to address the financial difficulties that led to the default to prevent future occurrences.
Check for accuracy: if you believe the default was reported in error, gather any supporting documentation and prepare to dispute the information directly with Experian.
Important note: ignoring a defaulted account will not make it disappear and can lead to further negative consequences. Proactive communication with the lender is essential.
In short: a defaulted credit account on your business credit profile signifies a serious failure to meet repayment obligations. It severely impacts your credit score and can hinder future access to credit. It's crucial to understand the reasons for the default, communicate with the lender, and address the situation promptly.