Adverse Credit History: What it Means, How it Works

What Is an Adverse Credit History

An adverse credit history is a track record of poor repayment history on one or more loans or credit cards. Adverse credit history will be reflected in a consumer’s credit report. It will lower their 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.

Key Takeaways

  • An adverse credit history refers to a track record of delinquent debt, late bill payments, large amounts owed, and the presence of bankruptcy or charge-offs.
  • Those with an adverse credit history are likely to have low credit scores and be classified as subprime borrowers.
  • Having adverse credit history makes it difficult to get credit and low interest rates on loans.
  • A poor credit history can be improved over time with good financial habits.

How Adverse Credit Histories Work

Adverse credit history is the result of substantial negative information about a borrower reported to a credit bureau.

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.

You may experience adverse credit events due to varying reasons. Each adverse item reported to a credit bureau will have differing effects on your credit report and credit score. Effects from adverse items can range from a major point decrease to a smaller 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 less severe, but ongoing delinquencies will result in a credit score deduction for each occurrence.

If you have an adverse credit history, you will likely find it more difficult to get credit. You may have to pay higher interest rates on loans or get subprime loans or secured loans.

Other Considerations

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. They are viewed as higher risk borrower.

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.

You can find out whether you have an adverse credit history by getting a free annual credit report from each of the three major credit bureaus, Equifax, Experian, and TransUnion. Credit card companies also often offer free monthly credit scores that have no effect on a credit score through a soft inquiry.

You can also get a free annual credit report at

In the case of student loans, adverse credit history means that a borrower has 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. Adverse credit history may make a borrower ineligible for a federal PLUS loan.

What Is a Hardship Withdrawal?

A hardship withdrawal is when you withdraw funds from a retirement account to use in case of an emergency to pay necessary bills. The IRS may allow this type of distribution with no penalty under certain conditions.

What Type of Loan Can I Get With Bad Credit?

If you have poor credit, you may not qualify for all loans, especially loans with low interest rates. With adverse credit history, you may have to rely on secured loans, which are loans that are backed by an asset used as collateral. Some people with poor credit rely on payday loans, but these loans have significantly high interest rates and can get you into more financial trouble.

How Long Does a Bankruptcy Stay on Your Credit Report?

A bankruptcy can stay on your credit report for up to 10 years. While a bankruptcy can help you get a fresh financial start, it will have long-term and significant negative consequences on your credit.

The Bottom Line

Having adverse credit history can cause financial harm to you long-term finances and potentially close opportunities such as getting a car loan or mortgages. To keep you credit in the best condition, pay all your minimum payments on time, try to make more than the minimum payment and avoid opening too many new accounts. Aim to reduce your debt by as much as possible.

Article Sources
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  1. United States Bankruptcy Court. "How Do I Get a Bankruptcy Removed From My Credit?"

  2. MyFICO. "How Credit Actions Impact Credit Scores."

  3. Federal Student Aid. "What Is And Adverse Credit History?"

  4. Consumer Financial Protection Bureau. "How Do I Get and Keep a Good Credit Score?"

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