Does Paying a Default Remove It From Your Credit File in Australia?

Quick Answer: No. Paying a default does not remove it from your Australian credit file. It updates the default's status from "unpaid" to "paid," which is visible to lenders — but the listing itself remains on your file for the full 5 years from the original listing date. The only ways to remove a default before 5 years are: successfully challenging it under the Privacy Act 1988 (if it was listed unlawfully), or in rare cases, negotiating a goodwill removal with the creditor. ACS achieves removal in 30–90 days on accepted cases.

This is one of the most common and most damaging misconceptions in Australian personal finance. Thousands of people pay off defaulted debts believing the entry will disappear from their credit file — then are bewildered when lenders keep declining them months later.

Let's be completely clear about what paying a default does — and what it doesn't do.

What Paying a Default Actually Does

When you pay a defaulted debt, the credit provider notifies the bureau, and the default's status is updated. That's it.

The listing stays. The date stays. The score damage stays. A "paid" default is still a default — and most mainstream lenders will still automatically decline applications with any active default on file, regardless of paid or unpaid status.

Some lenders' manual assessors may look marginally more favourably on a paid default than an unpaid one — but this is a soft preference, not a policy that unlocks mainstream lending for most borrowers.

What Actually Removes a Default

There are two legitimate paths to early removal:

Path 1 — Challenge the listing under the Privacy Act 1988

If the default was listed in breach of the law, it can be removed regardless of whether you've paid it. The most common grounds that lead to successful removal are:

1. No Section 21D pre-listing notice was issued (most common breach)
2. The default was listed while a genuine dispute was still active
3. The amount listed is incorrect
4. The debt is statute-barred (older than 6 years in most states)
5. The listing belongs to someone else entirely
6. The 5-year retention period has already passed

ACS's default removal services handle this process on a No Win No Fee basis. Successful removals happen in 30–90 days.

Path 2 — Negotiate goodwill removal with the creditor

Some creditors — particularly smaller ones — will agree to remove a default listing as part of a payment settlement. This is not a legal right; it's a commercial negotiation. If you pursue this path:

• Always get the agreement in writing before you pay
• Ask specifically for "removal of the credit listing" not just settlement of the debt
• Know that major creditors (banks, large utilities, telcos) rarely agree to this

Path 3 — Wait for the 5-year expiry

After exactly 5 years from the listing date, the bureau must remove the default automatically. The clock runs from when it was listed, not from when the debt occurred or when you paid it.

Real Case Study: Patrick, Ballarat — Paid the Default. Still Got Declined. Then Called ACS.

Patrick, 51, a teacher from Ballarat, had a $480 default from a telecommunications company on his Equifax file. Believing payment would clear it, he paid the debt in full in late 2024. His credit file was updated to "paid." Then he applied for a personal loan. Declined.

He applied to two more lenders. Declined and declined. His Equifax score remained at 501 — a paid default is still a default.

Patrick contacted ACS eight months after paying the debt. His assessment revealed that the telco had listed the default without issuing the required Section 21D pre-listing notice — a procedural breach that existed from day one of the listing, regardless of whether the debt was paid.

We challenged the listing under the Privacy Act 1988. The telco's compliance process confirmed the notice had not been issued. The default — now showing as "paid" — was removed entirely.

Result: Patrick's Equifax score moved from 501 to 712 in 41 days — a 211-point improvement. The paid status had been irrelevant to lenders; what mattered was the listing's presence. With it gone, he applied for the personal loan and was approved at 11.2% p.a. He only paid when we succeeded. Subject to individual assessment; results may vary.

The Common Mistake to Avoid

If a debt collector or original creditor contacts you offering to "clear" a default in exchange for payment, get the specific terms in writing first. "Settling the debt" is not the same as "removing the credit listing." Many people pay under the assumption removal will follow — and it doesn't.

The exact wording you need in writing: "Upon receipt of payment, [Creditor Name] will request removal of the default listed with [Bureau Name] dated [date], within [X] business days."

Without that written commitment before payment, you have no recourse if the listing stays.

Frequently Asked Questions

Will paying a default improve my credit score in Australia? Marginally, and only because the status changes from unpaid to paid — which some lenders note during manual review. The default listing itself remains and continues to damage your score for the full 5 years from listing. For meaningful score improvement, the default needs to be removed, not just paid. Professional removal under the Privacy Act 1988 delivers 100–300 point improvements in 30–90 days.

Can I negotiate with a creditor to remove a default when I pay? Yes — this is possible but not guaranteed. Smaller creditors and debt collection agencies are sometimes willing to negotiate removal as part of a settlement. Get the agreement in writing before making any payment, specifically stating that the credit listing will be removed. Major banks and large utilities rarely agree to this. It is not a legal right — it's a commercial negotiation.

How long does a paid default stay on my credit file in Australia? A paid default stays on your credit file for exactly 5 years from the original listing date — the same as an unpaid default. Payment changes the status field, not the duration. The clock started the day the default was listed, and paying does not reset or shorten it.

Can a paid default be removed from my credit file? Yes — if it was listed in breach of the Privacy Act 1988 or Credit Reporting Code, it can be challenged and removed regardless of whether it's been paid. The grounds for removal relate to the listing process, not the debt's current status. ACS successfully removes both paid and unpaid defaults where the listing was unlawful.

Does a paid default look better to lenders than an unpaid one? Slightly, in some lenders' manual assessment processes. But most mainstream lenders apply automatic decline rules for any active default — paid or unpaid. A paid status alone will not unlock mainstream lending. Removal of the default is what changes lending outcomes, not payment.

What happens if I pay a default and then get it removed? If the default is successfully challenged and removed under the Privacy Act 1988, the entire listing disappears from your file — paid status and all. Lenders then see a clean file with no record of the default. Your score improves immediately and substantially.

Find Out If Your Default Can Be Removed — Not Just Paid

A free assessment from Australian Credit Solutions tells you whether your default — paid or unpaid — was listed in a way that makes it challengeable under Australian credit law.

Australian Credit Solutions is ASIC-licensed (ACL 532003), lawyer-led by Principal Solicitor Elisa Rothschild, and has helped over 5,000 Australians remove unlawful defaults since 2014. No Win No Fee. 98% success rate on accepted cases.

Get My Free Assessment → 📞 0489 265 737 🛡️ ASIC Licensed ACL 532003 | ⭐ 4.9/5 from 976+ Reviews | 🏆 Award Winner 2022–2024

Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute legal or financial advice.

Free reports: equifax.com.au | experian.com.au | creditreport.com.au

Related reading: How to Remove a Default → | How Long Does a Default Last? → | Default Removal Services →