What Is Default And How Does It Affect My Credit Score?
In simple terms, a loan default is when you have not made your agreed upon loan payments to the lender. There can be any number of reasons why a consumer may not have made payments, but once a certain period of time has elapsed, that non-payment record will become a part of the consumer’s credit history. Once it becomes a part of the credit history (or credit record) it is available to be used during the formulation of the consumer’s credit score.
Default can occur with any type of loan. Student loans, home loans, auto, SBA, 401k, and payday loans are all susceptible to loan default. One of the most common loans where default happens is with credit cards.
Consumers should understand that default is not the same as deferment. A deferment is a plan in which the payment is postponed by mutual agreement between the lender and the borrower. There are many types of deferment programs and plans available for consumers, and those who are in danger of defaulting on a loan should look into a deferment before the default actually happens.
In general, lenders prefer to see a deferment rather...
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