Defaults on Your Credit History

Credit histories are compiled by three credit bureaus -- Experian, TransUnion and Equifax. Every person who uses credit cards, takes out loans or makes similar transactions has a file with those bureaus. Some actions, like timely payments, are positive entries on credit reports. Defaults are credit history blemishes because they show an unwillingness to pay owed accounts.

Definition

Defaults on a credit history are unpaid accounts. Credit card companies try to get customers to send payments within a month or two of defaulting, but Liz Pulliam Weston of MSN Money explains that they usually charge off the account if nothing is received within six months. The charge-off status shows up on credit reports, but the company may still have its own collectors try to get payment or sell the debt to an outside debt collector.

Time Frame

A defaulted account shows up on a person's credit history for seven years, according to the Federal Trade Commission . This period starts from the day the first payment was missed. A defaulted account that is sold to a debt collector may show up twice on the account holder's credit history. The original account remains, and the collection agency can add a collections notation. This entry can only remain for the same seven-year period as the original entry. The time frame does not restart with the sale of the debt.

Effects

Defaulted accounts look bad on credit reports, and they hurt the credit score of the account holder. Charge-offs are one of the most common reasons for credit application denial, according to Steve Bucci, who writes the Bankrate.com Debt Adviser column. Lenders fear that someone who did not pay one account with do the same with others.

Solution

Defaults can sometimes be erased from credit histories by paying the debt. Paying the owed amount or a smaller agreed-upon settlement is not enough to get rid of the negative entry. The credit card company will mark it as paid, but the delinquency still shows. Bucci recommends making it a condition of the pay-off that the collection agency change the entry to a positive status like "paid as agreed" or completely remove the entry from the credit report. Ask the company to confirm the agreement in writing before paying.

Considerations

Consumers are allowed to check their credit histories for free every year. Consumers are entitled to one free report from each of the three bureaus, but they must go through an official government website, annualcreditreport.com. Providing free reports lets people who negotiate settlements make sure the creditors or debt collectors followed through with erasing the negative entries.