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Adverse Credit History Explained

GoCardless
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Last editedNov 20212 min read

When you’re taking out a credit card or loan, you’ll be subject to a credit report that will determine your credit score. This figure is used to determine the amount of risk involved in lending you money, with a higher number indicating a better credit score and therefore lower risk, and a lower number indicating a worse score and higher risk.

One of the factors that influences the results of your credit report is your credit history, which refers to your history of repayments of loans or credit cards. An adverse credit history essentially means that you have made late payments in the past, or that there are other financial considerations that put you at higher risk for lenders. Keep reading to learn the adverse credit history definition and how it can affect you.

What is adverse credit history?

For those asking themselves “what is adverse credit history?”, there is actually a relatively simple response. In a nutshell, it means that the borrower has a number of different financial delinquencies that are reported to the credit agency, meaning that they are a higher risk candidate for the loan. This means that lenders will be less likely to approve the loan.

What causes adverse credit history?

It’s easy to define adverse credit history as above, but what can actually cause it? There are various different elements that can contribute to an adverse credit history, including:

  • Delinquent payments, which means that you are behind on payments. If you have consistently made late payments, then this will have a negative impact on your credit history.

  • Charge-offs. This refers to debt that a company now believes it will be unable to collect because the borrower is so far behind on payments. This does not mean that the borrower does not have to pay back the debt, but rather that it could be sold on to a third-party collections agency or that legal proceedings may occur.

  • Bankruptcy. If you have a history of bankruptcy, then this can contribute to adverse credit history.

  • Foreclosures, which refers to when a debt collector takes possession of an asset to recover unpaid debt. This usually happens with mortgaged properties when the borrower is unable to keep up with their repayments.

These are just a few of the factors that define adverse credit history, and there are many other elements that can contribute to this. Each adverse item will have a different effect on your overall credit score, depending on your pre-existing credit score and the severity of the delinquency. For example, bankruptcy has a much larger effect on credit history than late payments.

What does adverse credit history mean?

Now that you understand the adverse credit history definition, you might be wondering what it actually means. That is, how does adverse credit history impact you and your finances?

Lenders and creditors are interested in your credit history because it is the only way to predict your ability to make repayments on the loan. If a borrower has had credit problems in the past, then these are more likely to repeat in the future and therefore this borrower represents a higher risk. In response to this, lenders may refuse to lend money or may only be willing to lend it at a higher interest rate.

How to find out your credit history

If you’re considering taking out a loan or credit card, then it’s usually a good idea to get a credit report before doing so. It’s easy to do this by simply contacting one of the major credit card bureaus (Equifax, Experian or Transunion) who will perform a free credit report for you.

In addition, credit card companies often offer their customers the option to view a monthly credit score update as part of their services.

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