There are two ways in which defaults can occur:

  1. For regulated credit agreements, a default may be the result of failing to respond to a Notice of Default issued under section 87 the Consumer Credit Act 1974.
  2. For credit agreements that are not regulated under the act, e.g. mortgages, a default on a credit file simply indicates that the lender considers the relationship between itself and a borrower to have broken down.

In the first instance, the Notice of Default gives the customer 14 days to remedy the breach of agreement, typically via payments in arrears. A default notice should be the final letter in the 'cycle' before taking action. The default date, as reported to the credit reference agencies, is the date specified in the Default Notice. The customer would have been told to remedy the breach by this date. The account goes into default if the breach is not remedied in the specified time frame.

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The lender must allow 14 days from service before taking subsequent court action. Most courts expect 19 days overall due to post delays, weekends and public holidays. Upon default, you cease being a customer and become a debtor.

In the case of non-regulated credit agreements, lenders define the circumstances under which they consider an account to be in default. This will be in accordance with the standard terms and conditions provided when the account was opened. Conversely, non-regulated credit agreement lenders are required to give the customer 28 days to remedy a breach before the account is recorded as being in default at a credit reference agency.

Whichever way a default occurs, you cease being a customer and, as far as a lender is concerned, you become a debtor.

Defaulted accounts are regarded as serious arrears and will remain on your credit report for six years from the date of default, after which they will automatically be removed.