Credit Report
Default
Default summary:
A default occurs when a consumer doesn't repay a debt they were supposed to.
Defaulting on a debt is likely to damage your credit score.
Default can also result in wage garnishment, repossession, and other consequences.
Default Definition and Meaning
When you default on a debt, you didn’t make the payment you’re supposed to make. That could mean not paying your credit card bills or your mortgage. Defaulting on a debt could cause your credit score to drop, making it harder to borrow money in the future. In some situations, defaulting on a debt could lead to wage garnishment if a creditor sues you and wins.
Real-Life Examples of Default
Some ways consumers can default on debts include:
Not paying credit card bills
Not paying a mortgage
Not making payments on an auto loan
Not repaying a personal loan
Not paying back a home equity loan or HELOC
Not paying medical bills
Not repaying student loans
Comprehensive Breakdown of Default
Defaulting on a debt means not paying it as per the terms of your agreement. Usually, to be considered in default, you need to miss payments over an extended period of time.
The consequences of defaulting on debt depend on the type of debt it is.
Defaulting on a debt will typically cause credit score damage, no matter the type of debt. A lower credit score could make it harder to get approved for the account you want, at the terms you want, the next time you apply.
Defaulted accounts are often sent to collections. Collection agencies commonly use aggressive tactics to try to get people to pay up on their defaulted debts. These include persistent phone calls, emails, and text messages.
Defaulting on a secured debt
If you default on your mortgage, you could lose your home. Likewise, defaulting on a home equity loan or HELOC could also lead to foreclosure. If you default on your car loan, your lender could repossess your car.
Defaulting on an unsecured debt
Defaulting on an unsecured debt, like most personal loans or credit cards, won’t typically result in losing a specific asset. But if the creditor sues you and wins, they could also win the right to force your employer to send them part of your paycheck each week, or even the right to take money from your bank account.
Employment, housing, and insurance
Defaulting on a debt could, in some cases, make it harder to get a job. Some employers check applicants' credit reports as part of the hiring process. A debt that's in default could cause an employer to pass on an otherwise qualified candidate.
Defaulting on a debt can make it harder to secure housing. Landlords commonly check credit reports when tenants apply for a lease. A landlord may not want to rent to someone with a history of not repaying debts.
Defaulting on a loan could also, in some cases, result in higher insurance premiums. That could make auto or homeowners coverage more expensive.
Default FAQs
What happens if you can't pay unsecured debt?
Unsecured debts must still be paid. Just because the lender can't take property from you for non-payment doesn't mean you just walk away. Lenders can sue you for payment and possibly garnish your paycheck or attach your bank account. They can send your account to a collections agency. They may be able to contact you often and harass you about your debt. And they can report your default and harm your credit score.
Can you settle credit card debt if you are still current?
Although it is possible to try to settle credit card debt if you are still current, it is unlikely that many creditors will be willing to accept less than the full amount owed if your payments are up to date.
Whether you settle your debt on your own or work with a debt settlement company like Freedom Debt Relief, the most effective way to get creditors to negotiate is by showing them you are unable to pay your debt in full due to a financial hardship. Letting your payments go into default is a good way to do this. Once your creditors understand that you are unable to pay in full, they are more likely to accept a reduced amount as settlement.
What does it mean if a credit card company is suing you?
Credit card companies do not sue everyone that has defaulted on a payment. If they are suing you, it probably means you owe a significant amount and they have reason to believe that you’ll be able to pay. Because of that, if a credit card company is suing you it means you should take it very seriously. Make sure you respond, and consider getting legal help to decide how to respond.
Related Articles
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Debts eventually become uncollectible. Once a debt expires, collectors can't legally sue you—but some still try. Learn more here.
Creditors sometimes address unpaid credit card debt through the legal system. Learn how you can prevent those outcomes and manage your debt.
Even when they sue, credit card companies often settle for much less than what they’re owed so the right strategy can save you a lot of money.
Debts eventually become uncollectible. Once a debt expires, collectors can't legally sue you—but some still try. Learn more here.