Adverse Credit Explained

Adverse credit, also known as bad credit or impaired credit, is having a poor credit history. Your credit history is the history of your applications for credit in the form of loans, credit cards, store cards, hire purchase agreements and mortgages. Every time you apply for one of these, whether you are approved or rejected, an entry goes onto your credit file. The credit file is held by one of three credit reference agencies; Experian, Equifax or CallCredit. In addition to the result of your credit application, the credit file also makes a note of your payment record. If you miss payments, are in arrears on your mortgage, or default on a loan, then this is noted on your credit file. Too many of these and you have adverse credit.

Consider these circumstances. You take out a mortgage with a partner and the relationship breaks down. You find yourself unable to keep up with the mortgage payments. This is a common reason for mortgage arrears. Suppose you are made redundant, and you fall behind with your rent payments? This, too, can lead to adverse credit. If you become ill and are unable to work, some of your bills may not get paid. This will be noted on your credit file and you will have adverse credit.

Adverse Credit Circumstances
When you are in arrears or default on a loan, your creditor may apply for a County Court Judgement (CCJ) against you. This means that there is an official record of the amount you owe, the company you owe it to, and the payment arrangement you have made. A few years ago, lenders were more flexible about a couple of missed payments. With bad debt on the increase, they are becoming stricter - and are far more likely to make a CCJ claim. If the claim is upheld, then this will also form part of your credit record for the next six years. Having CCJs is another sign of adverse credit.

If you are having trouble with all your payments, perhaps because your financial circumstances have changed, then you might consider taking out an individual voluntary arrangement (IVA). An IVA is an increasingly popular solution to dealing with debt, though it has its pros and cons. An IVA is an arrangement between a debtor and a creditor to repay a portion of the debt owed over the period of the IVA. Once you make the payments, then the debt is regarded as satisfied at the end of the IVA. However, information about the IVA will remain on your credit file for six years. This is also true of bankruptcy, which is another solution to debt. Neither IVAs nor bankruptcy should be entered into lightly, as there are disadvantages to each of these solutions, in terms of both your credit file and your day to day life.

All of the circumstances listed here lead to adverse credit – the situation where your credit profile is so poor than most high street lenders will not lend to you under any circumstances. This can make it difficult to get a mortgage on the high street. However, there are other lenders who will lend to those with adverse credit.