Credit Score Basics > What does adverse credit history mean?

What does adverse credit history mean?

Wollit Team3 minute read · Updated 14th October 2024

Adverse credit, or bad credit, refers to negative information on your credit report that shows you've had trouble managing credit responsibly.

This can include late payments, defaults, or court judgments against you.

Having adverse credit on your report can make it more difficult to get approved for loans, credit cards, or other financial products in the future.

How do I know if I have adverse credit?

To find out if you've got adverse credit, look at your credit report and credit score.

First, check your credit score. While credit scores alone don't show full details, a very low score is likely a sign that you have some adverse credit impacting your rating.

You can get your credit reports from the three main credit reference agencies (Experian, Equifax, and TransUnion) either directly or through other websites – check out our guide on how to get your credit reports for free here.

Once you have your credit report, carefully check for anything off, as they can sometimes incorrectly show adverse information. If you find any errors, contact the credit reference agencies to get them corrected or removed.

If you can't get something removed, you can add a Notice of Correction. This 200-word note can give you a chance to explain why an adverse event is in your credit file. Lenders might understand if you defaulted because you lost your job, for example.

Why do I have adverse credit?

Many things can lead to adverse credit. Here are the main ones:

Late or missed payments: if you failed to make timely payments on loans, credit cards, mortgages, or utility bills.
Defaults: when a lender terminates your account due to repeated non-payment.
County Court Judgments (CCJs): Court orders related to unpaid debt.
Bankruptcy or insolvency, like an IVA (individual voluntary agreement).
Too many credit applications: applying for too many credit products in a short period, which can be seen as desperation for credit.
No credit history: Lenders can also view little or no credit history negatively.

Each of these adverse items affects your credit rating differently. For example, bankruptcy has a larger effect than late payments, which have a larger impact than simply having too many credit applications.

What happens if I have adverse credit?

Most adverse credit events stay on your credit file for 6 years. During this time, lenders will view you as a higher-risk borrower, which can impact you in many ways:

Rejected applications: Lenders may decline to offer you a credit card if your credit report shows too much negative information, such as late payments, defaults, County Court Judgments (CCJs), or bankruptcies.
Limited to "bad credit" options: If approved, you'll likely only qualify for credit cards and loans for those with poor credit histories. These "bad credit" cards have shorter repayment periods and generally worse terms.
Higher interest rates and fees: Bad credit loans and cards also tend to charge much higher interest rates and fees to offset the increased risk that you'll end up not repaying the loan.
Lower credit limit: the same bad credit options tend to have lower credit limits, as lenders want to limit how much they can lose in case you default again.
Almost no promotional offers: Those with good credit histories usually qualify for 0% introductory APR periods on purchases and balance transfers. You'll probably miss out on these if you have adverse credit.

The more severe and recent the adverse credit events, the bigger the negative impact on your ability to get approved for a new credit card, at least from mainstream lenders. Repairing your credit over time by making timely payments is crucial to improving your chances of getting approved for better credit card offers.

How can I rebuild my credit score if I have adverse credit?

Adverse credit can make getting credit and loans from mainstream lenders hard. However, with some discipline and patience, you can rebuild your credit score over time.

Here is what you can do:

Keep an eye on your credit score and reports: make sure what's in there is accurate, and dispute any errors. If you can't remove something, add a Notice of Correction.
Make all payments on time: Payment history is the biggest factor affecting your credit score. From now on, make sure to pay all bills – credit cards, loans, utilities, etc. – on time and in full each month. Setting up Direct Debit can be of huge help.
Pay down outstanding balances and don't max out your credit card: besides payment history, the amount of debt you owe compared to your total credit limits ("credit utilisation") also impacts your score. Focus on paying down credit card balances and other debts to reduce your credit utilisation. Experian recommends you stay under 25% of your total credit limit.
Avoid applying for new credit too often. Too many credit applications in a short period can make lenders think you're desperate for credit and further hurt your score. Only apply for new credit when you absolutely need to.
Finally, look into a credit-building product. Products like credit-building credit cards, when used responsibly, can help re-establish a good payment pattern on your credit file. Or, if you want to avoid dealing with the high interest rates and charges for these cards, sign up for Wollit.

Wollit is an innovative app that reports your monthly subscription as loan repayment, helping you establish a solid track record of timely payments without the worry of high-interest fees or exceeding your credit limit.