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How Defaulting on a Loan Affects Your Credit

Lauren Clifford
Written by Lauren Clifford
Jessica Sain-Baird
Edited by Jessica Sain-Baird
Updated on: April 30, 2025 Content was accurate at the time of publication.
We are committed to providing accurate content that helps you make informed money decisions. Our partners have not commissioned or endorsed this content. Read our editorial guidelines here.
Key takeaways
  • Defaulting on a loan can cause your credit score to drop more than 100 points.
  • A defaulted loan will remain on your credit report for seven years, even after you’ve paid it off.
  • A lower credit score and negative mark on your credit report can prevent you from getting affordable loans, credit cards and mortgages until you’ve repaired your credit.

How defaulting on a loan affects your credit

Missed payments and loans sent to collections will appear on your credit report, which will hurt your credit score.

Credit report impact

Negative marks like missed payments and loans sent to collections stay on your credit report for seven years, even after you’ve caught up on payments or paid off your defaulted debt in full.

You can remove collections from your credit report, but this typically only works if you don’t owe the debt.

Credit score impact

Missing payments by over 90 days can cause your credit score to drop over 100 points, and your score will continue to decrease the longer you miss payments.

The better credit you have to start with, the more defaulting will hurt your score.

Clueless about your credit?

Check your credit score for free with LendingTree Spring. You’ll get personalized recommendations on how to boost your score, and you can use Spring to track your score over time. (Checking your credit won’t hurt your score, either — that’s a common credit myth!)

Future impact

Missed payments or loan defaults make it harder to qualify for loans or credit cards. Even if you’re approved, lenders can charge higher rates, making borrowing more expensive.

Ultimately, bad credit affects you by limiting your access to affordable loans, mortgages and credit cards — if you can get them at all.

If you pay off your loan and start working on your credit, your credit score can improve before the defaulted loan falls off your report. But it will still take time to improve your credit.

What does it mean to default on a loan?

When you stop making loan payments for months, your account will go into default. Here, “default” means that you haven’t held up your end of the loan agreement by making regular monthly payments.

Lenders have different timelines for when they declare a loan in default to the credit bureaus, but it’s typically 120 to 180 days after your first late or missed payment.

Not sure if you’re in danger of defaulting?

Reach out to your lender to ask about the timeline for defaulting. Explain your financial situation and ask if the lender will restructure your debt or if there are any hardship or forgiveness programs that can help you get your account back in good standing.

What happens when you default on a loan

When you haven’t made payments in full for months, your loan typically goes into default. Here’s what happens when you default on a loan:

  • Your lender charges off your debt and sells it to a debt collector. After you’ve missed several months of payments, your lender will charge off your debt (meaning they’ve written it off and given up on trying to collect it) and sell it to a debt collection agency.
  • Debt collectors try to collect your debt. Your defaulted loan is now in collections, and the debt collector will start calling you to collect the debt.
  • If you don’t pay, the debt collector can sue you. Even though your original creditor (the lender you first owed the debt to) no longer owns the debt, you still owe it. If you fail to pay, debt collectors can sue you and eventually pursue wage garnishment.

Know your rights

You have legal protections when it comes to debt collection. For instance, debt collectors can’t harass, threaten or mislead you, and they have to send a debt validation letter to tell you about the money you owe.

How to get loans out of default

Once a loan has been charged off and sent to collections, the only ways to get your loan out of default are to pay it off or settle the debt. Work with a certified credit counselor to decide which option is the best for you.

Pay off your debt

You can pay off debt in collections by making a full payment or making payments over time.


Learn more about how to get out of debt.

Settle your debt

You can negotiate with your debt collector to pay less than what you owe. This is called debt settlement.

Learn more about how debt settlement affects your credit.

Student loans

There are different rules and processes for student loans. Learn more about student loan forgiveness.

Frequently asked questions

Defaulting on a loan can cause your credit score to drop by over 100 points, though the amount varies based on your credit before you defaulted. If you had good or excellent credit, your score will decrease more than if you had bad credit to begin with.

Default notices typically refer to mortgages in default. If you’re over 30 days late on a mortgage payment, your lender may issue a default notice. A default notice is serious — it means your home is at risk of foreclosure.

There are two main differences between delinquent debt and debt in default:

  • Time: Your debt is delinquent as soon as you’ve missed just one payment. It remains delinquent until it goes into default, typically after 120 to 180 days.
  • Consequences: A missed payment history hurts your credit score and goes on your credit report, but a loan in default hurts your credit even more. Your debt will also go to debt collectors, who can sue you for your debt and even garnish your wages.

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