Adverse Credit History

Adverse credit history is a track record of poor repayment history on one or more loans or credit cards. An adverse credit history will be reflected in a consumer’s credit report. It will lower his or her credit score and make it more difficult to get a loan or credit card with the best terms or even to be approved at all.

Adverse credit history is the result of numerous delinquencies reported to a credit agency on behalf of a borrower. Items that contribute to an adverse credit history include past-due payments, delinquent payments, charge-offs, collections, debt settlements, bankruptcies, short sales, foreclosures, repossessions, wage garnishments and tax liens.

Many borrowers experience adverse credit events due to varying reasons. Each adverse item reported to a credit bureau will have differing effects on a borrower’s credit report and credit score. Effects from adverse items can range from a 240 point decrease to a 50 point decrease depending on the occurrence. For example, a bankruptcy might lower a borrower’s credit score by 240 points and will stay on the credit report for up to 10 years. Other occurrences with more substantial credit score decreases can include debt settlements, charge-offs, tax liens and foreclosures. Payment delinquencies are typically the least severe with approximately a 50 point decrease however ongoing delinquencies will result in a credit score deduction for each occurrence.

Lenders and creditors care about adverse credit history because if a borrower has had credit problems in the past, they are more likely to have them in the future. As a result, lenders might not want to lend money, or they might only be willing to lend money at a higher interest rate than what they charge their lowest-risk customers who have no adverse credit history. Borrowers can find out whether they have an adverse credit history by getting a free credit report from each of the three major credit bureaus, Equifax, Experian and TransUnion, at www.annualcreditreport.com. Credit card companies also offer customers the option to obtain a monthly credit score update through their services as well with the report having no effect on a credit score through a soft inquiry.

In the case of student loans, adverse credit history has a very specific meaning. It means that a borrower has a 90-day delinquency on any debt or that they have experienced a specific adverse credit event within the last five years, such as a bankruptcy, repossession or tax lien. An adverse credit history will make a borrower ineligible for a federal PLUS loan.