The term Adverse Credit means exactly the same as “sub-prime” and “poor credit”. It is used to describe people who have a history of unsatisfactory credit transactions.

This raises a number of questions; what information is collected about you, where do they get the information from and how poor must a credit history be to label you as an “adverse” credit risk?

It’s the credit reference agencies such as Equifax and Experian which gather information about you, then process and sell it. Indeed, anyone with an “authorised purpose” (as defined by UK Law) can pay to see your credit file. This includes insurance companies, banks, lenders, any government agency, landlords, employers, and anyone you have requested to provide a product or service to you.

And you’ll be astonished what the credit agencies know about you!

A typical file will have your name and address, Social Security Number and date of birth. It will also include your current address, whether you’re on the voters’ roll and your and previous addresses. Also details of your current and previous employers, and information relating to your monthly payments on your credit cards, mortgage, hire purchase agreements and any loans you have. Then the file will record information from public sources. Details of any Court Judgements in respect of your financial affairs will all be on file. Finally the file is topped off with records of any other credit applications you’ve made.

All this information is assembled from two main sources: from financial institutions, building societies, banks, and other lenders offering credit and lending facilities, and Public Records offices. Quite honestly, the agencies are tracking your credit history from the first day you appear on their computer screens. Big Brother is watching!

The credit agencies then sell this information to anyone to whom you’ve applied for credit. They’ll also credit score your track record so that a prospective lender can make a statistical judgment on whether or not to allow you credit. Within this process your credit score becomes key.

Under the credit scoring system your credit history is statistically measured and awarded scoring points based on your details on file. The higher the points awarded, the better your credit rating. The points score measures the probability that credit offered to you will be repaid. The system is based on the principle that it’s possible to predict your future credit performance by examining your past credit record and statistically comparing that with the performance of other applicants who have similar characteristics. The points score then allows your potential lender to forecast the level of risk and reduce the element of subjectivity in their lending decisions.

So now back to the central question - When is your credit history called “adverse”?

In practice it’s not the credit agencies but the lenders who decide. Each lender has a lending policy through which they determine the level of credit risk they’ll accept. The decision is theirs - after all it’s their money! If your total points score reaches a certain level, then you ‘pass’ their credit screening. If you don’t score enough points, the lender may either refuse your application or offer to lend you a smaller amount than you had asked for or charge you a higher interest rate. But this means that what is acceptable to one lender may not be acceptable to another.

However, it’s useful to know some of the most important black marks that will damage your credit score. The last two shown below are the worst:

· County or High Court Judgements for debt
· Arrears on your mortgage or other loans
· Payments that are over 30 days late on your mortgage or other loans
· Multiple applications for credit
· You’re not on the Voters Roll at the address you claim to live at.
· Repossession
· Recent Bankruptcy (undischarged bankrupts will certainly be refused credit)

Lenders keep their precise lending policy a closely guarded secret but particularly on mortgages, particular lenders may indicate that some black marks could be acceptable.

At the end of the day, we hope that by reading this blogg, you will recognise whether it’s possible that you’ll be judged as being adverse credit”. The problem is that you cannot always be sure until a main line lender has already refused you. If you do get refused, you’ll then have to turn to a sub prime lender who may accept your credit history, especially if you’re a homeowner, but will certainly charge you a high interest rate for the privilege.

By now you’ll have realised that it’s important to build up a good credit history, which will be reflected in your credit score. A decent score will prevent you from incurring higher interest rates and extra costs. So remember, if you do apply for credit, make sure you can afford it and then maintain a perfect payment record. That way you’ll increase your credit score.