Adverse credit (also known as bad credit) refers to a history of harmful entries on a credit profile. Such entries may include late repayments, defaults or County Court Judgments (CCJs).
What is a credit history?
Your credit history is the record of information on how you manage credit, which is held by the three main credit reference agencies (CRAs) in the UK (Equifax, Experian, and TransUnion). Each month or so, your lenders report to the agencies about whether you have made your payments in full and on time. This information stays on your credit file for six years before it automatically drops off.
How does your credit history affect you?
When you apply for credit – whether that’s a mortgage, credit card or even a mobile phone contract – your credit history will be checked.
If lenders can see from your credit history that you’ve been unreliable with your repayments, they might view you as a risk and be less willing to lend to you, or offer you credit at a more expensive interest rate.
Alternatively, if your credit history shows that you’re a responsible borrower, who always makes their repayments on time, you have a better chance of accessing more attractive interest rates and credit deals.
How to check your credit history
You can check your credit report for free online through Experian, Equifax or TransUnion – or through our partner CredAbility, which offers a host of additional benefits aimed at boosting your financial health. This will show you exactly what lenders will see.
Bear in mind that not all lenders report to all three credit reference agencies, so the information on your report may differ from one CRA to another.
Will applying harm my credit history?
Every time you apply for a credit product, your lender will carry out a hard search of your credit file. This leaves a visible mark on your credit report and can cause a temporary dip in your credit score – regardless of whether you are accepted or rejected. If you make several applications within a short space of time, this can be a red flag to lenders, as it may look like you are desperate for credit.
This is where eligibility checkers come in handy. You can use these tools to check your chances of approval before you apply. As they only carry out a soft credit search, they won’t leave a mark on your credit file.
What are your options?
Having adverse credit doesn’t mean all doors to borrowing will be shut to you - it might just make things a little more difficult. You might be accepted to borrow but at a higher interest rate, or you could be offered a lower credit limit than you originally asked for.
The great news is there are ways to get your credit history back into shape. If you can do this, you might want to hold off applying to borrow until you’ve repaired your credit history. Then you may be in a better position to get approved – and for more competitive rates.
It can be as quick and simple as signing up to the electoral register, or closing old accounts you no longer use. Make every effort to stick to your agreement and keep on top of your future repayments. This way, lenders can see that they can rely on you to pay back what you owe.
You can find more tips on improving your credit history here.
Of course, whether you’ll be accepted for credit will ultimately depend on the lender. Each lender’s criteria and application process will differ. However, the one thing you can be sure of is that your credit history will be checked every time you apply for any form of credit.
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