Default

A default occurs when a borrower breaks the terms of a credit agreement. The most common trigger is missing payments, but an agreement can also list other events of default, such as breaching a covenant or providing false information. When the breach reaches a level the agreement defines as serious, the lender can formally record that the account is in default.

How a default is recorded

Before recording a default, a lender is generally expected to warn the borrower and give a reasonable opportunity to put things right. Where credit reference agencies are used, a default is then reported and stays on the credit file for a set period — typically six years from the date the default was registered — even if the balance is later cleared. This is why a default has a longer-lasting effect than a single late payment.

Consequences of a default

A recorded default signals to other lenders that the borrower did not keep to the agreement, which can make future borrowing harder or more expensive. Depending on the agreement, a default may also let the lender demand the full balance, end the facility, or begin recovery action. The specific consequences depend on the terms that were signed.

Avoiding and resolving a default

The most effective step is to make contact early. A lender that knows about a difficulty in advance can often agree forbearance — a temporary arrangement such as reduced or paused payments — that helps the borrower recover before the position becomes a formal default. Engaging promptly almost always leaves more options open than waiting.

Default in business lending

Credicorp lends to UK limited companies and limited liability partnerships rather than to consumers. The principle is the same: a default is a serious breach of the agreement with real consequences, so a business that sees trouble ahead should talk to us early. We would far rather agree a workable arrangement than record a default.