How to avoid an adverse credit history

How to avoid an adverse credit history

author: Holly

By Holly

Adverse credit is what you can be left with if you have missed payments to lenders or failed to clear your credit balances within an agreed time.


You’re likely to come across this term when you apply for credit - so, a credit card, loan or mortgage - or sign anything that requires a credit check, like a rental agreement.

You may struggle to get credit if you have an adverse credit history. This is because you’ve been an untrustworthy borrower in the past – maybe you’ve missed payments or been issued with a County Court Judgement (CCJ). As a result, lenders may be less willing to lend to you because they think you pose too great a risk. And if your application is successful, you may be charged a higher interest rate on the credit you borrow.

But as long as you stick to your credit agreements, you can avoid an adverse credit history.

Before we look into how you can do this, let’s take a look at how your borrowing behaviour affects your credit history.

Why do I have adverse credit?

"Negative marks will remain on your credit history for six years or so."

Adverse credit  can stem from a number of things. Perhaps the most obvious is making payments late or missing them altogether.

It’s important that you keep up with your repayments. If you don’t, you‘ve broken the agreement between you and your lender and your credit history will be negatively impacted.

To put it simply, your credit history is a record of how well you’ve borrowed in the past. Negative marks will remain on your credit history for six years or so. If you apply for further credit during this time, lenders may see you as a risk and could reject your application - which can impact your credit history further still.

Another less obvious cause of adverse credit is if you have never borrowed before. Now we know this sounds strange - if you’ve never borrowed, how can you possibly have a bad credit history?

Well, lenders could reject you because there’s simply no record to help them work out whether or not you’re a trustworthy borrower – and it’s this lack of knowledge that is the risk.

When you take out a credit agreement – whether that’s a loan, credit card, mortgage or hire purchase – you’re agreeing to repay the money you borrow. Keeping up with your repayments and paying back everything you owe is reflected on your credit history and shows that you’re a responsible borrower.

As we said, though, you might not be turned down by lenders if you have an adverse credit history. Instead, they could agree to lend to you, but at a higher interest rate than advertised. If your credit history is in the best shape, you’ll have a better chance being accepted for the most competitive interest rates on the market.

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How can I avoid adverse credit?

You need to show lenders that you’re a reliable borrower, either by keeping up with your repayments or building a proven track record of borrowing. 

For example, if you’ve got a credit card, you could consider setting up a Direct Debit for the minimum payment to be taken automatically from your account each month. That way you can be sure that you won’t miss this payment (as long as you have the funds available).

And if you’ve never borrowed before, you could build up your credit history by using a credit card with a low credit limit. Providing you make at least the minimum payment on time every month, you’ll start to build a positive credit history. And if you pay back what you borrow in full each month, you won’t have to pay interest.

You should keep regular tabs on your credit history. This way, you can be sure everything is correct on your file and can see whether it’s improving over time.

Credit-checking agencies like Noddle and ClearScore let you check it for free. Head here to find out more.

 

 

 

Disclaimer: All information and links are correct at the time of publishing.

author: Holly

By Holly

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