Defaulting on a credit card is a serious matter that can have long-lasting consequences on your financial well-being.
In Australia, a credit card default can occur if you miss a payment of $150 or more and the overdue payment remains unpaid for 60 days or more, despite the credit card provider sending two notices to you.
Read on for more about what constitutes a credit card default, the difference between a missed payment and a default, and its consequences.
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Key takeaways
- A credit card default occurs when you miss a payment of $150 or more, and the overdue payment remains unpaid for 60 days or more.
- Defaulting on your credit card can negatively affect your credit score and make it difficult for you to get a loan or credit in the future.
- A default remains on your credit report for five years, but paying the debt owed can be noted on the report.
What is defined as a credit card default?
A credit card default is defined as a missed payment that has been overdue for at least 60 days and the overdue payment is $150 or more.
To trigger a default, the credit card provider must also have sent two separate notices about the overdue payment, with the second notice letting you know that if you don’t make a payment, the credit provider will disclose this to the credit reporting body.
Missed payment vs credit card default
A default is the more serious version of a missed payment.
- Missed payment. A missed payment refers to a payment that is more than 14 days late, which will be listed as part of your repayment history on your credit report. It will stay on your report for two years. If the payment was less than 14 days late it won’t be recorded on your report, but you may still be charged a late fee by your credit card provider and lose any interest-free period that your card has. Note that there are some credit cards with no late fees, but they are few and far between.
- Default. A payment of $150 or more that has been overdue for at least 60 days, with the lender sending two warning letters. A default will remain on your credit report for a period of five years from when it was added.
What happens after defaulting on a credit card?
Defaulting on a credit card can have serious consequences. As we’ve mentioned, a credit card default will stay on your credit report for five years. This can negatively impact your credit score and make it harder for you to get a loan or credit in the future.
Your bank could cancel your credit card and sell your credit card debt to a debt collector. It could also start legal action to recover the money you owe.
If your debt is sold to a debt collector, they may contact you by letter or phone. In this instance, it’s important to understand your rights and be honest about your financial situation, replying promptly to their calls or letters, considering a payment plan if you can afford it, and letting them know if your contact details change.
FAQs
Can a default be removed from your credit report?
If the default was made in error, it can be removed. However, if the default resulted from non-payment, it will likely not be possible to have it removed and it will remain on your credit report for 5 years.
How long does a default stay on your credit report?
A credit card default will remain on your credit report for 5 years from the date it was first listed. This information will be accessible to credit providers and may impact your ability to obtain credit in the future.
How long can you legally be chased for an unpaid debt in Australia?
In Australia, the statute of limitations for pursuing a debt in a court of law is 6 years. This means that after 6 years, a creditor cannot take legal action against you to recover the debt.
Can you get a credit card with a previous default on your credit report?
Most lenders stipulate that they require credit card applicants to have no recent missed payments or defaults. Having a default on your credit report makes it more difficult to obtain credit, including a credit card. The more time has passed and the more secure your financial position, the higher your chances of approval are (most likely for an entry-level card).
Is it a crime to default on a credit card?
No. Defaulting on a credit card is not a criminal offence.
Can you go to jail for unpaid debt?
No, you cannot go to jail for debt in Australia. However, a creditor may take legal action to recover the debt, resulting in wage garnishment, bank account seizure, or the sale of assets to repay the debt.
