If you have frequently missed loan and credit cards repayments, you might have an adverse credit history.
Having bad credit may stop lenders from agreeing to give you credit now and in the future. That means it will be difficult to get another loan and maybe even a mortgage.
We explain what adverse credit history really is, and give tips on how to improve your credit score, so you can get another loan in the future.
What is adverse credit?
Adverse credit is when an individual repeatedly fails to meet repayments on loans and credit cards. Or even when you have not managed your bank accounts well and accumulated charges over a long duration. When the individual does not repay what has been agreed in their credit agreement, this is reported by lenders to credit reference agencies, such as Experian or Equifax.
It can occur through late payments, by not repaying enough each time – or a combination of both.
As a result, you will have points deducted from your credit score. There is no fixed score that equates to adverse credit, but anyone with a poor or very poor score is usually judged to have an adverse credit history.
Adverse credit could be caused by repeatedly defaulting on a single personal loan, credit card or car loan etc., or not meeting the payments on a number of loans and cards with various lenders.
What does adverse credit history mean?
Adverse credit history is another way of describing adverse credit, i.e. it is someone who has not met their credit repayment terms by not repaying lenders on time or the right amount for a prolonged duration.
They may have missed multiple repayments on the same loan, or defaulted on a number of credit agreements simultaneously. The two terms are often used interchangeably.
How long does adverse credit last?
Adverse credit history will remain on the individual’s credit file for six years in the UK. After six years has elapsed since the late payments, the financial data is deleted from the credit score.
However, there are ways to improve your credit file in the meantime, which could enable you to access credit from loans and credit card companies even with previous adverse credit.
How do I know if I have adverse credit?
You might have had loan arrears in the past and are now wondering how to check if you have an adverse credit history. You can find out if you have adverse credit by completing a credit check on a credit reporting agency website.
As lenders report defaults and negative balances to a credit agency, you’ll need to complete a credit check to find out.
If you know you failed to pay what you borrowed in full or on time, it’s likely you will have bad credit.
When the company reports your missed payments, your credit score will decrease by X amount of points depending on the nature of the missed payment. If you repeatedly miss payments, your credit score decreases more and you will be left with an unsatisfactory credit rating.
Some reporting will cause a bigger decrease in your credit score, such as bankruptcy.
Where can I find my credit report?
There are multiple online credit reference agencies registered in England, Wales and Scotland that you can use to access your credit report. Some examples include Equifax, TransUnion, Experian and CallCredit. You may prefer to use another online agency.
These agencies typically offer free trials where users can see their credit score and credit history for 30 days. However, you must remember to cancel your free trial or you could be made to pay for the following month(s).
How do I fix my adverse credit?
The first way to possibly improve your credit score and any adverse credit history is to look for lender errors on your credit report. Sometimes a credit report will include erroneous details that lower your credit data. But you can ask lenders and agencies for these errors to be removed.
You are usually asked to contact the lender first and ask them to request the error is removed. If they dispute the data held, you can ask the agency to look into the matter.
Other ways to “fix” adverse credit is to improve your current and ongoing financial health. By being responsible with money and repaying lenders as agreed, your score can increase and the risk of lending credit to you will eventually decrease.
Five common ways to do this are:
- Pay your bills on time and in full
- Avoid credit you don’t need
- Prioritise paying off debt (maybe those with high-interest rates first)
- Don’t move home too frequently
- Use limited credit responsibly
Some of these tasks are easier said than done. You might need the assistance of a budget planning tool, or even debt solutions. A money management business can help with the latter, but some equivalent services are available with finance charities.
How do I remove adverse credit from my credit report?
You can remove adverse credit from your credit report by looking for errors and asking for them to be removed by your lender from your credit history. The only other way that adverse credit can be removed from your credit report is when they are automatically deleted after six years.
But it’s just as important not to accumulate more arrears.
Why you need good credit
Having a fair or good credit score is important as your credit history is checked by lenders and mortgage companies when you want to apply for credit in the future. If their credit reference search brings up a history of debts, they are likely to reject your application.
The key takeaway? Your current performance matters for years!
Can I get a mortgage with adverse credit?
If you have an adverse credit history, you will likely struggle to find a mainstream mortgage lender – such as a bank – that is willing to lend you the money to buy a home.
Mortgages are typically for significant sums of money and bad credit will affect your chances of securing this type of lending. However, there may be limited mortgage lenders that will consider people with poor credit history. They may not lend as much or the rate of interest may be higher than usual.
You may need to consult with a mortgage advisor to help search the market for financial businesses that will offer mortgages to those with bad credit.
How to avoid adverse credit
A bad credit score begins with failing to keep up with credit agreements. This may be due to personal circumstances changing quickly, such as unemployment. Or it could be due to poor money management.
In many cases it’s not your fault at all; you may have been wrongfully given credit in the past or paid an illegal rate of interest (too high!).
You can avoid late payments by asking lenders for breathing space or payment holidays when circumstances change. They may renegotiate agreements to help you avoid negative account balances, and thus, negative reporting.
Money Help support and services
Arrears and past debts don’t just affect your credit report and the ability to get further credit or mortgages, but they can result in enforcement action. You could be taken to court, issued with a County Court Judgment (CCJ) and face repossession action for failing to repay.
Whether you have ongoing finance worries or just want to clean up your adverse credit history, you can contact a registered charity for support. You can call them for free or write to them at their registered office.
These charities can help with everything from looking for errors on your Equifax account to assisting when facing repossession action. Use their services to get free access to advice, payment support, and a way to become free from money troubles.
And don’t forget our guides!
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