A payment default can happen quite easily – a loan instalment, bill or other financial obligation is not paid on time. However, one late payment does not automatically mean that a payment default has occurred. Once a payment default has been registered, it can affect both your ability to get a new loan and your credit score.

In this article, we explain what a payment default is, how the payment default register works, how long payment default information is retained, and whether getting a loan with a payment default is possible.

What Is a Payment Default?

A payment default means failing to meet a financial obligation on time. In the Creditinfo Payment Default Register used in Estonia, debts that have generally remained unpaid for more than 45 days and amount to at least €30 are published. The debt must also be valid, due and verified.

A payment default is not limited to loans. It can result from any unpaid financial obligation, such as:

• An unpaid loan instalment

• An unpaid instalment payment

• A lease or leasing payment

• An unpaid bill

• Another contractual financial obligation

This means that a payment default can also occur if a person does not currently have any loans.

What Is the Payment Default Register?

The payment default register collects information about the debts of individuals and companies. Its purpose is to help businesses assess credit risk and make informed credit decisions. Payment default information is also used by credit providers when assessing a person's creditworthiness before granting a loan.

It is important to distinguish between the payment default register and credit score. They are not the same thing.

The payment default register records specific payment defaults. A credit score or other credit assessment, on the other hand, is a broader evaluation that may be based on various types of information, including payment defaults and credit behaviour.

How Long Does a Payment Default Remain Visible in the Register?

A payment default does not necessarily disappear immediately after the debt has been paid.

According to Creditinfo, a completed payment default concerning a private individual may be published for up to 5 years after the payment default has been resolved. If the payment default is still active, meaning that the debt remains unpaid, it may generally be published for up to 15 years. In certain cases, the period may be longer.

Therefore, paying a debt does not necessarily mean that information related to the payment default will disappear from the register the following day. Paying the debt is nevertheless an important step, as an active payment default is resolved when the debt is paid or the breach otherwise ends.

How Can I Check Whether I Have a Payment Default?

Individuals can check their payment default information through the My Creditinfo website. Viewing your own information is free of charge, and you must verify your identity to log in. You can also see who has made enquiries about your payment default information during the past two years.

If you discover a payment default registered in your name and have doubts about its accuracy, you should first contact the creditor. The creditor is responsible for entering and updating payment default information in the register. If the issue is not resolved, you can also submit an objection through Creditinfo.

How Does a Payment Default Affect Your Credit Score?

A payment default can affect a person's credit score and overall credit assessment. Various types of information are considered when calculating a credit score, and payment defaults are an important factor. Creditinfo explains that the most effective way to improve your score is to pay your obligations on time. However, your score may not improve immediately after paying off a single debt.

It is important to understand one key difference: a payment default is a specific situation, while a credit score is a broader assessment of credit behaviour.

Therefore, it cannot be assumed that removing one payment default will automatically result in a good credit score. Credit behaviour develops over time and is influenced by several factors.

Can You Get a Loan with a Payment Default?

The question “Is getting a loan with a payment default possible?” is very common, but there is no single answer.

An active payment default generally makes obtaining a loan significantly more difficult, if not impossible, because the credit provider must assess the applicant's creditworthiness before granting a loan. This means evaluating whether the person is able to repay the loan under the agreed terms. To do this, information about income, existing obligations and the person's overall financial situation is collected and checked.

Responsible lending means that the credit provider must assess whether the applicant can repay the new obligation.

If the payment default concerns, for example, a single unpaid telecommunications bill, this does not automatically mean that the application will be rejected. Each loan application is reviewed individually, and in the case of a payment default, the consumer is given recommendations on how to have it removed.

Loan with a Payment Default – What Should You Consider Before Applying?

If you have an active or recent payment default and are considering taking out a new loan, you should first assess your actual financial situation.

Ask yourself:

1. Has the existing payment default been paid off by now?

2. What loans and other financial obligations do I already have?

3. How much is my regular net income?

4. How much money remains after monthly obligations and regular expenses?

5. Would the new loan payment fit within my budget if an unexpected expense arose?

If you are already struggling to meet your existing obligations, taking out a new loan may not solve the problem. On the contrary, a new financial obligation could put even more pressure on your financial situation.

Can a Paid Payment Default Prevent You from Getting a Loan?

An active payment default and a history of payment defaults are not the same situation.

Once the debt underlying a payment default has been paid, the payment default is resolved according to the register's rules. However, information about the previous payment default may remain in the register for several years.

This means that a previous payment default may still be one of the factors considered by a credit provider when assessing creditworthiness. At the same time, it is not reasonable to assume that every credit decision will be the same based solely on one previous payment default. A credit decision is based on an overall assessment of the person's current financial situation and creditworthiness.

What Should You Do If You Have a Payment Default?

If you experience temporary financial difficulties, the most important thing is to address the problem immediately.

If you know that you will not be able to pay a bill or loan instalment on time, contact the creditor as soon as possible. Depending on the situation, it may be possible to agree on a payment schedule or find another solution.

If a payment default has already occurred, you should:

• Check the actual amount of the outstanding debt.

• Contact the creditor.

• Pay the debt as soon as possible or agree on a repayment arrangement.

• After making the payment, check that the information in the register is correct.

• Avoid taking on new obligations if you are already struggling to meet your existing commitments.

The Estonian Financial Supervision and Resolution Authority emphasises that responsible lending involves assessing creditworthiness before entering into a credit agreement. Loan applicants must also provide the credit provider with accurate information about their financial obligations and income.

A Payment Default Does Not Mean Your Financial Situation Cannot Improve

A payment default can affect your ability to get a loan and your credit score even after the debt has been paid. However, this does not mean that your financial situation cannot improve.

The most important steps are to pay your obligations on time in the future, avoid new debts and assess whether a new loan is genuinely affordable before applying.

Frequently Asked Questions About Payment Defaults

What Is a Payment Default?

A payment default is a failure to meet a financial obligation on time. In the Creditinfo Payment Default Register, debts that have generally remained unpaid for more than 45 days and amount to at least €30 are published if they meet the register's requirements.

Can a Payment Default Occur Without Having a Loan?

Yes. A payment default can be related to an unpaid bill, leasing payment, installment payment or any other financial obligation.

Can You Get a Loan with a Payment Default?

An active payment default can make obtaining a new loan significantly more difficult. Before granting a loan, the credit provider must assess the applicant's creditworthiness and ability to repay the new obligation.

Does a Paid Payment Default Disappear from the Register Immediately?

Not necessarily. According to Creditinfo, a paid or resolved payment default concerning a private individual may remain visible in the register for up to 5 years after the payment default has been resolved.

Does a Payment Default Affect Your Credit Score?

Yes. Payment defaults can affect your credit score and credit assessment. Various types of information are considered when calculating a score, and positive payment behaviour can help improve your creditworthiness over time.

Where Can I Check My Payment Defaults?

You can check your payment default information through My Creditinfo after verifying your identity.

What Should I Do If a Payment Default Registered in My Name Is Incorrect?

You should first contact the creditor, as the creditor is responsible for entering and updating payment default information. If necessary, you can also challenge the payment default through Creditinfo.

Conclusion

A payment default is not simply a note in a register. It is an important part of a person's credit history and can affect both their credit score and ability to obtain a new loan.

If you have a payment default, the most important step is to address the existing obligation rather than automatically taking out a new loan to cover it. If you are considering a new loan, assess your income, existing obligations and actual ability to repay before applying.

A loan should be a solution that you can repay within your budget, not a way to postpone existing financial difficulties.