Payment Default : How they Impact your Credit Report

6 April 2025 in Banking and Finance | 5 min read | skip to FAQs

This article examines the legislation surrounding payment defaults and court judgments, detailing what information can be recorded on an individual’s credit file, how to access this information and the process of correcting any inaccurate information.

What are Payment Defaults and Judgments?

A payment default occurs when an individual or business fails to meet a financial obligation, such as paying off a loan or invoice. The creditor may then report this failure to a credit reporting agency, where it can be recorded on the individual’s credit file as a default. The person who owes the money is known as the debtor and the person who is owed the money is known as the creditor.

A court judgment refers to a legal decision made by a court when a creditor takes legal action against the debtor to recover the money owed. If a court judgment is made in favour of the creditor, the judgment can also be recorded on the debtor’s credit file.

Information Recorded on a Credit File

Any business that sells good or services on credit, or with extended payment terms on an invoice will generally check the credit record of the potential customer. Such an enquiry will often occur when a potential customer makes an application for credit with the business. Several types of information can be reported and appear on an individual’s credit file. These include:

1. Payment Defaults: A credit provider can report and a credit agency can record a default on the debtor’s credit file if the overdue period has exceeded sixty days and is equal to or more than the sum of $150.00. It is a requirement that a first and second notice of the omitted payment be sent to their address, with a thirty-day interval between the two. Section 6Q of the Privacy Act 1988 (Cth) provides a definition of default information.
2. Court Judgments: When a creditor brings the payment default to court and is successful in their claim, a judgment may be ordered against the debtor and recorded on their credit file.
3. Bankruptcy Declarations: If an individual or business is declared bankrupt or insolvent, this will be recorded on their credit file.

These types of payment records can remain on an individual’s credit file for five or more years, depending on the circumstances.

Relevant Legislation

In Australia, the regulation of credit reporting and the authority on payment defaults and judgments are primarily governed by the following legislation:

• The National Consumer Credit Protection Act 2009 (Cth) (NCCP Act)

The NCCP Act regulates the provision of credit and consumer protections in Australia. Specifically, Part 3-2CA provides the rules regarding a licensee (holders of an Australian credit licence) and a credit provider (defined in section 6G of the Privacy Act 1988 (Cth)), only sharing accurate and necessary information with credit reporting agencies. The NCCP Act helps to safeguard consumer rights.

• The Privacy Act 1988 (Cth) (the Act)

The Act governs the handling of personal information, specifically credit information.

1. Section 21D outlines when credit information can be disclosed to credit reporting agencies.
2. Section 6G defines “credit provider” and the criteria that must be met to fulfil this definition.
3. Section 6N defines “credit information”, including any details about a person’s creditworthiness, including defaults, overdue payments, or court judgments.
4. Section 6Q defines “default information”, specifying the type of data that can be recorded on a credit file when an individual fails to meet their financial obligations.

• The Privacy Regulation 2013 (Cth) (the Regulation)

The Privacy Regulation supports the Act by providing further details on the permissible disclosure of credit information. Specifically, Rule 14 governs the permitted disclosure of credit information to a credit reporting body. This rule emphasises that only relevant and correct credit information can be shared, as is provided by the Act.

Circumstances that Warrant Record Removal

In particular circumstances, records of a payment default or court judgment can be removed from an individual’s credit file before the statutory five-year period expires. These situations include:

1. Full Payment of the Debt – Some agencies allow for the removal of a payment default from the credit file if the debt is paid in full within 30 days of the default being recorded on the person’s credit file.
2. Disputed Information – Any person can dispute a debt that is not owed. If the payment default or judgment is incorrect, a process is available to apply for the deletion of such record.
3. Financial Hardship – If the payment default resulted from circumstances of financial hardship, a request for removal on this basis or negotiations regarding a repayment plan with the creditor may be made. If the creditor agrees, it is crucial this be put in writing.

A credit provider is not authorised to list a default while a removal request is active, or within fourteen days after the request has been denied, providing the debtor time to make payment.

The Process of Correcting Inaccurate Information

It is crucial that your credit file fairly reflects your financial records. Inaccurate entries can harm your credit score and negatively impact your ability to secure future loans and credit. If there appears to be inaccurate information on one’s credit file, there are steps that should be taken to correct it. These are outlined below:

Step 1: Review the Credit Report

Each individual is legally entitled to request a free copy of their credit report once a year from the following major credit reporting agencies:

1. Equifax Australia Pty Ltd
2. Experian Australia Pty Ltd
3. Illion Australia Pty Ltd

Once the credit file is obtained, the individual should review it for any discrepancies regarding payment defaults, court judgments, or any other entries.

Step 2: Dispute the Inaccurate Information

If incorrect information is identified on a credit file, it can be disputed with the credit reporting agency. This process generally involves notifying the credit reporting agency and waiting for an investigation to commence. The details of the incorrect information must be provided with any supporting documentation that proves the claim made (e.g. bank statements, receipts, or legal documents). Subsequently, the agency will investigate the dispute within thirty days and contact the creditor who reported the information to request clarification. If the creditor does not respond or if it is proven that the information is incorrect, the credit reporting agency is required to remove or correct the entry.

Should the matter escalate, complaints can be lodged with the Australian Financial Complaints Authority (AFCA). The AFCA is an independent complaints service that investigate particular credit reporting agencies. The creditor must suspend court proceedings while the AFCA complaint is open.

Step 3: Seek Legal Advice

If the matter cannot be resolved through direct communication, or if the issue is  involves a court judgment, seeking legal advice is the most efficient action. An experienced debt recovery lawyer can guide you through the dispute process or act on the debtor’s behalf should the matter proceed to court.

By following these steps, an inaccurate credit file can be corrected which can result in the early removal of defaults or judgments.

Key Takeaways

For individuals:

1. Records of payment defaults can be made on an individual’s credit file if a credit reporting agency claims that you fail to meet financial obligations within the provided period. Court judgments can also be recorded if a court rules in favour of the credit provider.
2. Both defaults and judgments typically remain on a credit file for five or more years.
3. It is essential that inaccurate information is corrected to uphold one’s financial record and status.
4. Inaccurate records can be disputed by contacting credit reporting agencies or creditors directly.
5. Engaging an experienced debt recovery lawyer is recommended to assist with the process of rectifying incorrect financial records.

How can BSM Sydney Lawyers assist you?

The experienced banking and finance lawyers at BSM Lawyer Sydney can assist with your credit problems. If you are struggling with a payment default or court judgement, we can help you. We also advocate for you if you have a disputed debt or dispute your credit records. BSM Sydney Lawyers provide a free 20-minute consultation to discuss your individual case and formulate a plan. We will protect your credit file and financial reputation.

Our expert finance lawyers also represent debtors who wish to pursue creditors. We offer competitively priced letters of demand, which result in recovery of the debt in over 75% of cases. Moreover, if this fails, unlike debt recovery agencies, we are able to directly pursue all legal avenues to recover the debt.

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BSM Lawyer Sydney has conveniently located offices in Sydney CBD, Sutherland, Parramatta, Shellharbour and Wollongong.