Types Of Adverse Credit

A guide to the types of adverse credit

Keeping your credit file in good order is an important factor when applying for a mortgage and ensuring you achieve the best interest rates available. Adverse credit is a key factor in determining the interest rates that will be available to you, and if that adverse credit is too severe it is likely to cause a decline in your ability to borrow. This is especially true the smaller percentage deposit you have available.

In this section we will run through the types of adverse credit, and their potential impact on your ability to borrow. As a first time buyer we will assume you have a lower percentage deposit, and as such it is fair to say that any of the listed credit misdemeanours are likely to be a hindrance to acquiring lending.

Bankruptcy

If you are currently bankrupt, you are unable to borrow. Most lenders would require your bankruptcy to be 5 or 6 years behind you, whilst some will state they will not lend should you ever have been made bankrupt. This is about as serious as adverse credit can get.

IVA

An individual voluntary arrangement or IVA is often an alternative to bankruptcy. A deal with your creditors will be reached, and a set timescale set out with monthly payments. Whilst in the IVA, it will be difficult to acquire further new lending.

Defaults

A default is a term used for when you have defaulted on the payments agreed on the credit contract. This is often registered following several missed payments.

CCJ

A county court judgement is often sort to enforce you to repay a debt, and the courts often agree a payment plan as part of it. Many defaults end up in subsequent CCJs.

Missed or late payments

A late payment or a missed payment on a credit agreement will also be registered as adverse credit. This may be on a loan, credit card or hire purchase, but can equally be relating to mobile telecommunications payments, utility bills [Gas, water and electricity] or any other monthly paid by a credit agreement set up.

Multiple of these types of missed payments will lead to a potential default or CCJ. These are deemed worse that missed or late payments. 

Most lenders will expect to see a clean credit file. However, minor “blips” that are historic should not be an issue for most experienced brokers. More serious adverse credit will of course pose larger challenges, and interests that are offered typically reflect the risk involved to the lender.

It is important to obtain your credit file and monitor it continuously in our opinion. You should definitely provide your broker with a copy as early in the process as possible. This is important even if you don’t have any adverse credit. This will allow them to accurately record payments and balances for any credit you have, but also see how the scoring systems are viewing you. It could be you have no credit, and as a young first time buyer this can also be a challenge as you have no history.

Your home may be repossessed if you do not keep up repayments on your mortgage