What Does Adverse Credit Mean?

Adverse credit history can make it difficult – and sometimes impossible– to get certain loans. 

But what does adverse credit mean?

In this article, we will define adverse credit history, explain how it affects your credit score, and what you can do to improve it.

Let’s dive in.

Adverse Credit Meaning: What Is Adverse Credit History?

An adverse credit history essentially means that there is derogatory information on at least one of your credit reports.

What Does Adverse Credit History Mean?

Adverse credit history is a track of poor repayment history. 

Those with an adverse account usually have a bad credit score (or no credit history) and are classified as subprime borrowers. A poor credit score means you’re less likely to get a loan with the best terms or be approved at all.

What Causes Adverse Credit History?

If your credit history features any of the following negative items, then you likely have an adverse credit history.

Delinquent payments 

Delinquency on your credit report means that you are behind on your payments. A loan becomes delinquent when you make late payments, even if you miss the payment date by one day. If you’re delinquent for a certain period of time, your lender can declare the loan to be in default.

Charge-offs 

When you’re severely delinquent on a debt (usually for 6 months or more), your creditor can declare a charge-off, which states that the outstanding debt amount is unlikely to be repaid. They can then sell the debt to a debt collection agency or take legal action against you.

Bankruptcy 

If you can’t repay your debts and the value of the things you own is lower than what you owe, you can declare bankruptcy. There are certain advantages and disadvantages to declaring bankruptcy, but the main downside is that it will be reflected on your credit report and will stay there for six years.

Foreclosures 

Foreclosure is the legal process of seizing and selling a borrower’s property if they can’t meet their repayment obligations, which allows the lender to recover the amount they’re owed. Unlike bankruptcies, a foreclosure will stay 7 years on your credit report. 

Individual Voluntary Agreement (IVA)

An IVA is a formal and legally binding agreement between you and your creditors that requires you to repay your outstanding debt over a certain period of time. An IVA stays on your credit report for 6 years, and you could only get a loan of up to £500 without your Insolvency Practitioner’s (IP) permission.

County Court Judgements (CCJs)

County Court Judgement is an official document issued by the court that you can get if someone takes legal action against you for unpaid debt. CCJs are recorded on credit reports and stay there for six years.

How Do I Know If I Have Adverse Credit?

To find out whether you have adverse credit, you can request a free credit report from the big three credit bureaus: Equifax, TransUnion, and Experian.

The report is a snapshot of your credit history and will show if you have any negative marks. If you do, then you likely have an adverse account. 

You could also check your credit rating with these agencies. Keep in mind that all credit bureaus use a slightly different scale.  For example, a score of less than 560 is ‘good’ with Equifax but ‘very poor’ with Experian. 

How Long Does Adverse Credit Last?

The status of your credit and how long it will remain in that state directly depends on the type of negative items you have on your credit file. Adverse accounts that have foreclosures recorded will remain ‘adverse’ for 7 years. 

Bankruptcies, IVAs, and CCJs stay on record for 6 years. 

They are automatically erased from your credit report after that time passes.

How Can I Get Adverse Credit Removed?

If you end up with adverse accounts due to a CJJ, IVA, or bankruptcy on your credit files, you won’t be able to remove them before their end date unless they’ve been added there by mistake.

However, adverse credit history can sometimes be the result of an error. If you have an adverse account, you can have it removed to improve your credit score. You can either contact the lender and ask them to update the inaccurate information, or you can dispute. 

If you can’t get in touch with them, you can dispute the inaccuracy directly with the credit bureau. They will contact the lender to confirm that it’s an error and update your credit file. 

How To Fix Adverse Credit?

The only ‘quick fix’ to adverse credit history is disputing inaccuracies on your credit file. 

If there aren’t any errors on your credit report, then the best thing you can do is try to improve your credit score and/or prevent it from dipping further. 

To do that, you should:

• Deal with delinquencies.
• Avoid unnecessary loans.
• Avoid hard inquiries when possible.
• Make full and regular bill payments.
• Set up a repayment plan that will prioritise high-interest debts.
• Keep a low credit utilisation rate.
• Limit how often you apply for new accounts.
• Consider debt consolidation loans.

Can You Get a Mortgage With Adverse Credit History?

Having an adverse history means that you’re much less likely to be able to get approved for any type of loan, including a mortgage loan. However, it’s not impossible. People have taken up mortgages with an IVA; you just need to find some specialised lenders that offer loans to individuals with adverse or limited credit history.

The downside is you’ll have to pay a higher interest rate, and the lender will likely ask you to put down a larger deposit to mitigate the risk they’re taking by lending to a person with a bad credit score.

Adverse Credit History Meaning: Bottom Line

So, what does adverse credit mean? An adverse credit history means that you have negative marks on your credit file, which is often the result of late payments and unpaid debt. If you want to check whether you have an adverse account, you can request a credit report from the top three credit bureaus in the UK.