Adverse Credit History Details

Each individual’s record of borrowing and repayment appears on their credit report, which can be used by a variety of people and companies to determine borrower responsibility and predict future patterns of repayment. Lenders check your score to determine further lending, and often landlords will check credit history when deciding whether or not to rent to a tenant. If you miss payments frequently or have a pattern of missing payments, this is called an adverse credit history. Adverse credit history will negatively affect your ability to secure future credit.

The more missed payments that exist on an individual’s credit report, the more likely it is that borrowers will be offered increased interest rates, less desirable terms for loans, and even have credit applications turned down. FICO is the most common credit score. FICO assigns ratings from 300-850, where 580-699 is considered fair, and 300-579 is considered very poor. Other factors can also contribute to an adverse credit history, such as high usage of existing credit (cards that are very near to their limit or maxed out) and major negative events such as bankruptcy, foreclosure, and repossession. Negative marks on your credit report can remain for up to seven years, leaving you with an adverse credit history that will travel with you for quite some time.

You can mitigate the adverse effects that unpaid debts can have on your score by repaying owed money and settling overdue accounts. The length of time an account is overdue also impacts your score (the longer your account is delinquent, the more negative the impact). This will help raise your score and begin to show lenders new positive trends in your history. However, since you cannot remedy missed payments, they will remain on your score for the full time, so your best defense against an adverse credit history is to pay on time, every time.

Example of Adverse Credit History

James is a 30-year-old man who owns his own house and always pays the mortgage on time. He had credit accounts open since he was 18 when he got his first credit card. He now has six credit cards open, all of which have reached their limit or are nearing their limits. He tries to make the minimum payments each month, but it is hard to stay on top of all of them. He can typically only afford to make four of the payments at a time.

He bought a timeshare when he was 23, but after a year of struggling to make the high payments, he discontinued any attempt to pay and let the timeshare company foreclose on his vacation property. James recently learned that his house needs a new roof and has attempted to open a new credit card and even take a home equity loan out on his house. But because of his large number of missed payments, high credit usage, and foreclosure history due to the timeshare, he is considered to have an adverse credit history. This results in James being unable to borrow additional money or open additional lines of credit to help repair his home.

Significance of Adverse Credit History

Many adults rely on their credit to grow in their financial endeavors. Most commonly seen are securing a mortgage for a house, obtaining a credit card, purchasing a new car, or buying things that we may not otherwise be able to afford outright. Adverse credit history can hurt your chances of obtaining these things. Poor credit also takes a while to improve. Unfortunately, in most cases, good character and intent can't stand up to a bad credit score.