What Does Adverse Credit Mean, and What Can You Do About It?

As of 2022, 15% of UK adults had experienced adverse credit in the last three years. Sound familiar? If you’re struggling with adverse credit, you’re not alone. In fact, with such a rise in adverse credit scores, there are more resources than ever before (like this one) dedicated to helping you improve your credit score.

So, what exactly is adverse credit, what does it mean for your day-to-day life, and what can you do about it? Let’s find out!

What is adverse credit?

Simply put, adverse credit is bad credit. It indicates that you have struggled with loan or credit card payments. That’s a bad sign to lenders because your ability to repay them is their top priority. As a result, you may struggle to access credit products other than high-risk types of credit like payday loans.

What causes adverse credit?

Adverse credit or bad credit has lots of causes, but major contributors include:

• Defaulting on loans
• Missing payments or making late payments
• Having had accounts sent to collections
• Having declared bankruptcy
• Having a county court judgement (CCJ)

How adverse credit impacts you

Adverse credit makes it harder for you to achieve your financial goals. Here’s why:

1. Adverse credit affects your eligibility for loans and credit cards

As we mentioned, lenders are most concerned with how predictably you’ll make your payments. If your credit history shows that you have defaulted or missed payments in the past, you may not be approved for credit products like credit cards, loans, and car finance.

2. You’ll see higher interest rates if you have adverse credit

In the event a lender is willing to lend to you despite your adverse credit, you’ll probably see high interest rates. This is meant to keep you from carrying a balance, in which case your payment will rapidly accrue interest. The average credit card’s interest rates hover around 23.57%, and that’s just the representative interest rate. If you have adverse credit and are approved for a loan or credit card, you’ll almost certainly face higher interest rates.

Related read: What’s representative APR and why is mine higher?

3. Adverse credit can influence your ability to rent or find certain jobs

Renting is possible regardless of your credit score, but having adverse credit can make it more difficult. If a landlord is worried that you might miss a rent payment, they may let the unit to an applicant with a better credit file.

Likewise, adverse credit usually doesn’t impact your employability. That said, certain industries and roles, particularly ones involving you handing a company’s financial responsibilities, may be unattainable if you have negative marks on your credit report like a bankruptcy, individual voluntary agreement (IVA), or a debt relief order (DRO).

I shouldn’t have adverse credit. What can I do?

If your credit score went down for no apparent reason, there may have been an error that’s not your fault. While this is uncommon, it’s worth checking your credit file to see what’s changed and why. Some common errors include:

• Identity errors - These are errors associated with the recording of your personal information. These include things like your name, National Insurance Number, address.
• Payment History Mistakes - Watch out for payments that you made on time but are indicated as being late.
• Account Errors - The accounts reflected on your credit report must belong to you. If an account that shouldn’t be on your report is listed there, report the discrepancy as soon as you can.

Again, errors on your credit report are uncommon. Credit reference agencies, banks, and credit card companies have complex systems in place to segregate your information from others and prevent errors. However, they can still occur. Checking your credit report at least twice a year should help you identify and report any errors.

Has your credit score randomly dropped? You can check these 8 reasons today

How can you fix your adverse credit?

As we’ve covered in other articles, you can’t fix adverse credit overnight. If you’ve had a CCJ, a bankruptcy, an IVA, or a DRO, it can take as long as seven years to rebuild your credit. However, as time passes, your credit score will slowly be less and less affected by those factors.

Repairing an adverse credit status takes time, planning, and patience. However, with those ingredients, it’s 100% possible to overcome.

Start with the basics

First, if you’re surprised by your adverse credit, start by regularly monitoring your credit report and disputing any inaccuracies.

Second, make a plan to get out of debt if you have any. Take the time to consider your own psychology and how you reach your goals, and choose a plan for getting out of debt that aligns with how you work best.

Paying off your debt can not only give your credit score a boost, but it can also give you the financial freedom to prioritise things like establishing a consistent payment history.

Related read: How to get out of debt in the UK

Start building your credit score

Once you have your basic finances back under control, consider starting to rebuild your credit score with the following tools:

• Credit builder loans: Credit builder loans require you to make monthly payments into an account. Unlike with a regular loan, you must complete the payments before the loan is released to you. Credit builder loans can help you boost your credit score by improving your payment history — the most important factor influencing your credit score.
• Credit builder cards: Credit builder cards work the same way as credit builder loans, but with a card. They’re essentially prepaid credit cards with the added bonus that your payments can boost your credit score.

Credit builder apps: Apps like Pave can help you build and protect your credit score. Pave protects your credit score from further damage by monitoring your bank accounts and notifying you when you have bills coming up. And with Pave’s credit builder account, you can establish a strong payment history just like when you use a credit builder loan or card. Plus, Pave Plus users can monitor their score — with both Equifax and TransUnion — directly in the app.

‍

‍

*Results may vary. Pave cannot guarantee an increase in your credit score.