What a DEFAULT or a JUDGEMENT means for your credit history

by Chris Lang on May 28, 2012

Financial terms

Credit history is a very important input in the process of assessing a person’s borrowing capacity. People rarely think about their credit score before diving into the purchase of a new home, yet at that point in time bad credit history can be tough to ‘undo’. As we know money doesn’t come with instructions, so getting an understanding of these terms in the world of credit history can help you maintain a clean record.

DEFAULT

This is when you miss a payment on a loan. It also refers to when you don’t comply with a condition of your contract such as the due date on your deposit or the settlement date is missed.

The vendor and/or the purchaser can be in breach of the conditions of the contract and they are said to be in default. When you are in default, you will generally incur penalty interest. This is at the discretion of the party not in breach of the contract.

A default or an overdue account is where a loan repayment has been missed and is 60 days in arrears. Even utility bills such as telephone, gas and electricity will be reported to the CRAA (Credit Reporting Agency of Australia) if they are in arrears by 60 days or more.

JUDGEMENT

A judgement against the debtor means that despite repeated efforts on behalf of the creditor the debt was not paid nor were there any arrangements to pay.

The creditor felt it was necessary to take the matter to court to make the debtor pay. The only act worse than this, to a Bank or Lender is bankruptcy. Once you have a judgment against you, you can virtually be assured a traditional bank style lender will not lend.

Sometimes there are exceptions which prove the rule. There are other Lenders that will lend to people in this category but the interest rate will be loaded according to the risk and the person’s credit history.

This article was kindly contributed by Mrs. Mortgage – Jennifer Schelbert. Jennifer is a director of Mrs. Mortgage Pty Ltd, a licensee for Choice Aggregation Services, and a full member of the Mortgage Finance Association of Australia & COSL.

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