If you’ve ever checked your credit history or spoken to the likes of a lender, financial advisor or broker, you may have come across the term ‘adverse credit’.
Adverse credit simply refers to someone with a poor credit history. If you’ve struggled to manage your payments in the past, you may find that any future applications for credit you make, whether that’s a loan, credit card or mortgage, may be impacted on.
What is your credit history?
Lenders use your credit history to determine whether you’re likely to be a responsible borrower. If in the past you’ve ever missed payments or been issued with a County Court Judgment (CCJ), this will show up on your credit history.
The thing is, when you have a credit card, loan etc., a record of your repayments shows up on your credit history. Any negative marks, like a missed or late payment, will be visible for six years or so. And this is what could impact on your success when you apply to borrow in the future.
So if you’ve never looked at your credit history, it’s worth doing so. This way you’ll be up-to-date with what lenders can see when they check it. Plus, any errors on your report can be rectified.
Unfortunately, lenders don’t always let you know if you’ve been late or missed a payment. This is why it’s important to check your credit history regularly so you can address any issues like this before you apply to a new lender.
How do I check?
Lenders access your credit history through one of these three credit reference agencies - Callcredit, Equifax, and Experian. Each provides its own free credit-checking service, so you can sign up to all three and avoid paying a monthly fee. Noddle is offered by Callcredit, ClearScore is owned by Equifax and CreditMatcher by Experian.
You can find out how we think they compare with each other here.
What about my score?
If you’ve signed up to a credit-checking service, the first thing you’ll probably notice is your credit score. If you’ve struggled with borrowing in the past and your score is low, it’s not the be-all and end-all.
This is because there’s no such thing as a ‘universal credit score’. You should use the score credit reference agencies give you as just a guide to see whether it’s improving month by month.
After all, lenders don’t see these scores - they just see how well you’ve managed your borrowing in the past. Lenders will come up with their own scoring system to determine whether or not to accept each application made to them.
If you find you have a less than perfect credit history, don’t worry - there’re ways you can improve it.
How can I improve my credit history?
When you apply to borrow, your credit history will undoubtedly be a major factor that lenders will consider. But they will take your income, outgoings and how much you’ve asked to borrow into account too.
Unfortunately, there’s not a set of clear-cut ways to improve your credit history, as each lender will look at different things. However, there are steps you can take to make sure it's in the best shape possible.
If you currently have a credit card or loan, make sure you keep on top of your payments. This will show lenders that you’re sticking to the agreement you made and making every effort to pay back what you’ve borrowed. If you have a credit card, you can set up a Direct Debit so that at least your minimum payment is automatically taken out, so you don’t have to worry about missing it.
If you’ve never borrowed before, you can build your credit history over time. If you do decide to take out a credit card to do this, make sure you keep up with your repayments and never miss them. And if possible, it’s a good idea to clear the balance in full every month to avoid paying interest.
By taking these steps, lenders should see that you’re a responsible borrower and your credit history won’t be negatively impacted.
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