Will a default from many years ago impact me even today?
The simple answer is, ‘Yes’. Even a single payment default stays on your credit report for many years. Every time you delay or miss a loan or credit card payment, the lender reports it to the credit bureau/s and it is noted on your credit report. It can take several years (generally up to 7 years) for the default to drop off your report.
Repayment history is a heavily weighted factor in your credit score and can form up to a third of your score. Thus every single repayment has implications for your credit score.
It is vital not to default on any payments, but if you feel that you will not be able to pay your EMIs/ credit card bill on time, talk to your lender about your financial situation and negotiate a restructured payment plan that is mutually acceptable.
Apart from payment defaults, other negative marks also stay on a credit report for a long period of time. The following can also adversely affect your credit score:
- Over-utilization of credit limit
- Lender enquiries on multiple loans and credit cards
- Imbalance between secured and unsecured credit
How to handle an old loan default?
The best thing you can do is to make an effort to pay off your old loans that you have defaulted on so that you can change the account from ‘Written Off’ or ‘Settled’ status (which have a negative impact on your credit score), to a ‘Closed’ status. Talk to your lender about a plan to repay any past loan/card obligation you have defaulted on, that takes into account your current ability to pay.
Make sure that once you have paid off your loan in full, that the new status is reflected in your credit report. Sometimes, due to administrative error, the old negative status continues to appear in your report and unnecessarily drags down your score.