Adverse credit (known as ‘bad credit’) is a negative mark on your credit report. It happens when you've had a poor repayment history on things like loans, credit cards and other financial commitments. You can also get adverse credit if you have little or no credit history.
Your credit rating is summarised by a score. The lower your score, the ‘worse’ your credit is. Having a low score can make it harder to borrow money or get approved for things like a mortgage, but it’s not impossible.
Adverse credit will have a negative effect on your credit score so it’s good to know what causes it. Here’s the main issues that cause adverse credit:
If you apply for lots of loans or credit cards too close together, it’ll bring your score right down. Lenders can see when you’ve applied for credit, and too many applications at once can suggest you’re too reliant on borrowing. If you need a credit card or loan, make sure your applications are spread out a little.
A late payment is when you don’t pay a bill when it’s due. When it comes to late payments, there’s a difference between forgetting to pay on time, and being unable to pay on time. A late payment isn’t the same as a missed payment or arrears. A late payment is just that: a payment that you did make, you just didn’t make it on time. This difference is important for understanding how it affects your credit file.
For example, let’s say your next credit card payment is due on the 1st of the month, but you wait until payday on the 7th to pay it. It won’t be marked by your credit card company as a late payment in most instances, because the payment’s been made before the next one is due. A payment can only be recorded as late 30 days after it’s due.
A default happens when your account with a creditor (people or company you owe money to) is closed because you’ve repeatedly missed payments and an outstanding balance. For example, this could be on a credit card, mobile phone provider or utility company, rent or a mortgage. You can get a default on your credit history regardless of how much money you actually owe. For example, it’s possible to get a default for a very small amount.
The way you end up with a default is the creditor (the person or company you own money to) will have made an attempt to reclaim the money. And a default happens after a period of missing payments for three to six months, sometimes longer, but this very much depends upon the creditor’s own terms.
You’ll usually have been sent a default notice before your account being closed – and this is essentially a request for you to repay your balance before further action is taken.
A Debt Management Plan (DMP) is an informal agreement that's made between yourself and a creditor to pay off unsecured debts in instalments over time.
It's not a legal agreement and can be cancelled by either party at any time.
It can be arranged either directly with a creditor or through a debt management company. If you go through a debt management company, you have the option to pull all your debts together and repay more than one creditor.
DMPs can't be used to repay things like mortgage, rent, council tax or utility bills, but can help settle money owed on credit cards, bank loans, mobile phone contracts or store cards.
A payday loan is a short-term loan, usually coming with a high interest rate. On their own, payday loans aren’t actually a bad credit issue and don’t reduce your credit rating if you’ve paid them back on time.
But when it comes to applying for things like loans or mortgages, payday loans can be a red flag for lenders. Lenders base all their decisions on risk, and people with a history of payday loans are seen as higher risk. Some lenders think relying on payday loans to cover your everyday living expenses means you’ll struggle to keep up with your repayments.
A CCJ is a court order that is served against you when you fail to repay money that you owe, usually after other attempts to recover debts have failed. You'll be required to pay off your debt either in instalments or in a single lump-sum.
After your CCJ has been 'satisfied' (meaning fully paid) it'll show on your credit file for six years. Which can make applying for any type of credit, including a mortgage, and other financial products more difficult because you are seen as a higher risk than someone without a CCJ.
An IVA (Individual Voluntary Arrangement) is a legal agreement between you and the people you owe money to. It lets you repay your debts over an agreed time period.
An IVA goes on your credit file and brings down your credit score. But the benefit is that your debts are frozen and no more interest accumulates, which means you can make manageable repayments.
An IVA gives everyone involved a clear timeline for when the debt will be repaid. When the IVA agreement comes to an end, you'll be free from the commitments to your creditors.
When your home is or car is repossessed, it stays on your credit report for six years.
A repossession will negatively impact your credit rating when it happens. Your credit score will improve in time as the repossession gets further away as long as you’re careful to improve your score during this time.
Bankruptcy is a legal process that happens when you're unable to repay your debts. After being declared bankrupt, you'll be relieved of your debts, but you wont be able to borrow money until you're discharged (usually one year), and the impact on your credit score means it’ll be harder to get approved for things like loans and credit cards.
Checking your credit report is the best way to find out if you have adverse credit. There are three main credit agencies in the UK; Experian, Equifax and TransUnion, and they all calculate things a little differently.
Along with personal information such as your age, date of birth and address history, your credit report includes a list of your credit and bank accounts, as well as any utility company debts or outstanding loan agreements. Your report will also show if you’ve missed any payments or have been a little late. You should always try to keep on top of your credit repayments as missed or late payments will stay on your credit report for at least six years.
checkmyfile* is a great tool to use if you want to see how you rank with the big credit agencies. They’ve been around for over 20 years helping people understand their credit history, and is the UK’s top ranked credit report service on Trustpilot.
If you’re worried about adverse credit affecting your mortgage chances, make an enquiry to speak with one of our Mortgage Experts. They’ve seen it all, and have plenty of experience with bad credit mortgages.
*Heads up, when you click through to our affiliate links, we may earn a small commission at no extra cost to you. We only recommend sites we truly trust and believe in.
When checking out your credit report you may see some errors or mistakes. Don’t worry, this is unfortunately pretty common and can usually be put right.
Your credit report is normally updated every month as all of your lenders - including your bank and credit accounts - report your data to the credit reference agencies. If something doesn’t look right, perhaps there’s a closed credit account still on there or it’s showing an incorrect late payment. Make sure you take it up with the credit reference agencies (Experian, Equifax, TransUnion) or contact the company that may have made the error to correct it. Many of the credit reporting agencies even allow you to raise a dispute on their website.
Yes, you can get a mortgage with adverse credit! Applying for a mortgage can feel daunting, and there’s more to consider if you have issues in your credit report. Most high-street banks aren’t set up to deal with people who have credit issues, and so they might turn you down unnecessarily. You’ll just need to apply to a lender that has experience lending to people with adverse credit. They’re out there, but because they’re more specialist, they’re mostly only available through specialist mortgage brokers - like us!
Read more about getting a bad credit mortgage, and how you can give yourself the best chance of getting accepted.
If you’re worried about adverse credit holding you back, here’s some tips to help you boost your credit score:
We know you’ve probably got better things to do, but regularly checking your credit is SO important if you want to improve your credit score and get a mortgage. Take some time to look at your report in detail, check if everything looks right and consider the following:
Mistakes in your name, current and past addresses, date of birth and other personal information can all affect your credit score. If it’s wrong, report it to the credit reference agencies to put it right.
Being registered to vote in your local area or on the ‘electoral roll’ makes it easier for lenders to prove your identity and your current address. It’ll work in your favour when you’re applying for a mortgage. To check if you’re on the electoral register go to this gov.uk page.
Make sure you recognise all of the bank and credit accounts on your credit report. Sadly there’s people out there who’ll fraudulently open up bank accounts or borrow money in other peoples names. Sometimes these can go undetected and negatively affect your credit score.
Credit isn’t always a bad thing! Using it responsibly can actually have a positive impact on your credit score. But it’s good to keep on top of how much you’re using, especially if you’ve got credit cards, as spending up to your limit can lower your credit score.
Do you have a credit card or an account that you no longer use? If you do, you might think it’s best to close it. But that's not always the case. Unused accounts can actually work in your favour as they count towards your overall credit limit, but help to keep your credit utilisation ratio down. You can actually improve your credit score by having some credit accounts open as long as you spend responsibly and can afford to pay them back each month.
It’s always a good idea to check your report to see who you’re linked to financially. You could be linked to someone you set up a joint account or credit card with who has poor credit. This can negatively impact your credit score. So if you don’t need to share an account anymore, it’s best to remove yourself from those accounts altogether.
Are you paying your household bills on time, but your name isn’t on the account? Then your good work won’t be counting towards your credit score. Household bills can often be in one person’s name, even if they live with other people. So it’s always best to check these and if needed, update them to include your name.
When applying for credit, lenders will carry out a ‘hard search’ on your credit history, which is then noted in your report. These notes can stay on your credit report for 12 months, so if you make lots of applications in a short space of time it can make you look a bit credit hungry! Lenders might think you’re struggling to manage your money and decide not to loan to you. So try and spread out your credit applications, if possible!
Whatever your situation, it’s best to face things head on and get some advice. Adverse credit doesn’t have to stop you from getting a mortgage. Our Mortgage Experts have seen it all and aren’t judgemental. Make an enquiry to find out your adverse credit mortgage options.
Our Mortgage Experts are fully-qualified with experience in bad credit, self-employed and complex mortgages. They have a proven track record of getting mortgages for people who’ve been rejected elsewhere.