What Is Adverse Credit History [2024 Guide]

Have you found your credit score to be significantly lower than you remember? What might be happening to your credit score is a result of adverse credit history. So, what is adverse credit history?

In this article, we will explain what adverse credit history is, how to know if you have it, how it affects you, how to remove it, and much more.

Read on to learn all about it!

Adverse Credit History Meaning

Adverse credit history is a record of bad credit history, more specifically an accumulative record of delinquent debt, large amounts owed, late bill payments, charge-offs, and even bankruptcy. This type of credit history is reflected in the consumer’s final credit report and lowers the overall credit score. This can make it difficult for you as a borrower to get a loan or credit card with optimal terms.

So, out of all the negative information that can accumulate on your report, what is considered an adverse credit history? If you have one of the following penalties, that is a very strong sign of having adverse credit history:

Past Due Payments 

This refers to payments that have not been made before their due date. Consequently, all past due payments accumulate and decrease the overall credit score. They also incur late payment fees.

Delinquent Debt

Delinquent debt is a debt whose payment is not made by the agreed-upon end date with the lender. If a payment is 30 days late (or more), chances are that the lenders will report it to the national credit bureaus as delinquent. These types of debt carry high fees and go straight on your adverse credit report.

Charge-Offs

This is a type of debt that is ultimately deemed not to be collected by a creditor. This happens due to the fact that the borrower has become delinquent and is not in the position to pay off their debt on time. This type of debt is usually announced only after six months without payment.

These types of late payments can put you into the category of subprime borrowers and go straight on your adverse credit report. Marks like these will leave an adverse credit imprint for some time, which will be visible to any lender who runs a credit check on you. As you might already know, your credit history gives lenders an insight into how well you’ve managed credit repayments in the past and a bad credit score can limit a lot of your future borrowing options.

How Long Do Adverse Accounts Stay On Your Credit Report?

How long adverse accounts, i.e. negative payment history, can remain on your credit report is regulated by federal legislation known as the Fair Credit Reporting Act (FCRA). Every credit report falls under the so-called seven-year rule, where late payments (or any other delinquency) remain on the said credit report for a period of seven years. After that, the late payments will be removed but your adverse credit ratings will still remain.

Some more severe penalties, such as bankruptcy, remain for up to 10 years. When it comes to the specifics of negative payment information, the time limits are more variable. The following are a few types of negative information and how long each type stays on your report:

• Charge-offs, for example, can stay on your record for seven years, starting from the date of the first missed/late payment on your account.
• Delinquency due to delayed, missed, or late payments, and collections or balance sheets that have been turned over to a collector, can remain on your adverse credit rating profile for seven years from the date of the misconduct.
• Bankruptcies, more specifically the two main types of bankruptcy, Chapter 7 and Chapter 13, can stay on your report for up to 10 years from the bankruptcy’s filing date.
• Foreclosure is a type of default that incorporates your adverse credit lenders taking possession of your home due to failure to make timely payments. This stays on your report for seven years from the date of the first delinquent payment.

How to Know if You Have Adverse Credit

There are three main credit bureaus or credit reporting agencies (CRAs) in the US that offer full reports of your credit history. You can check these reports to see if you have any adverse credit that can lower your credit score. Adverse credit lenders look at the reports provided by the following CRAs, as should you:

• Experian

Experian offers one free annual credit report that includes your payment history, current balances, and any negative items. The report also shows a summary of your account totals and total debt.

• Equifax

Equifax’s free annual credit report contains information summarizing your account history, including the types of accounts you have and all the negative items and debt which are part of your adverse credit ratings.

• TransUnion

TransUnion’s annual free credit report includes the companies that have extended your credit or loans, in addition to your credit limits and payment history.

You have the right to one free annual report from each of the CRAs, and you can order it online on annualcreditreport.com. In addition, you have the right to get an additional free copy of your credit report if you’ve been denied credit or insurance within the past 60 days.

Experts state that it’s worth getting a copy of your adverse credit rating from all three CRAs. That’s because some of them might have non-identical information from different credit contributors, although there is quite a lot of overlap between them.

Key Takeaways 

Can You Remove Adverse Credit History?

There are a few strategies on how to get to where you have no adverse credit history. This in turn will help you achieve a better credit score based on your credit report. This is crucial when it comes to taking out loans, for e.g. getting positive interest rates on personal loans. So, if you have a bad credit history but you need to improve your credit score at the same time, here are the options you have:

File a Dispute Letter to the Credit Bureau

If you have adverse credit mortgages or track details that you think may be incorrect, you can submit a dispute letter 609 to the credit agency that provided the credit record. This will notify them about the negative items you believe are incorrect on your credit file. The three main CRAs offer online help for all customers that want to file a dispute online. You can even repeat the same process with all three of the CRAs just to make sure all of your credit records are clear. However, make sure you have solid evidence that a mistake has been made, otherwise, the adverse credit history will not be removed. So, if you’re wondering what is adverse credit doing on your report, be sure to file a dispute.

Try Sending a Goodwill Letter

If the negative payment history on your credit report is accurate, then you should approach it a bit differently. Although it might sound like a shot in the dark, writing a goodwill letter directly to the creditor is an effective idea. In this letter, you simply ask for the creditor to remove any negative payment information (more specifically, a charge-off) as an act of goodwill only if you’ve paid off your overdue debt. This is one potential way of removing charge-offs and late payments from your account.

Deliver a “Pay-For-Delete” Proposal to Your Creditor

Another way to remove an adverse account on a credit report is to request a pay-for-delete. This means that you offer to pay out the debt in full or in part, for which the creditor or a collection agency will agree to delete the adverse account from your report. However, recently, credit scoring models such as FICO 9 and VantageScore 3.0 don’t take paid collections into account. This means that if you fully pay out a collection account, it will not affect your score negatively.

How Adverse Credit History Affects You

The thing about adverse credit history is that lenders and creditors will look at it and immediately deem you an unreliable borrower. This means that lenders, in most cases, will not want to lend you money. If they do, the loan will usually come with a higher interest rate than the interest rate given to borrowers with no adverse credit history.

When it comes to student loans specifically, adverse credit takes on a different meaning. In this situation, adverse credit history means that the borrower has 90-day delinquency on their debt or has experienced some sort of adverse credit mishap in the last five years. This entails negative payment information such as bankruptcy, tax lien, and even repossession. This further means that a borrower with adverse credit history fails to meet the requirements for a federal PLUS loan.

How to Get a PLUS Loan With Adverse Credit

The US offers a specific loan to parents of undergraduate students who cannot sustain all the college expenses during their child’s education called a Federal Direct PLUS Loan. If you are looking to get a PLUS loan, but your situation calls for an adverse credit history loan, you can still get the loan if you complete PLUS Credit Counseling with one of the following methods:

Applying With an Endorser

In this situation, an endorser is a person that agrees to pay your debt. If you do have an endorser, they’ll need to complete a few steps such as getting their own FSA ID and filling out an endorser addendum. This can be done online, as well as on paper (printable paper addendum).

Appeal the Credit Decision

Another option is to appeal the credit decision. This is a viable option in case the information on your credit report is untrue, or in case of some very specific circumstances leading to you having an adverse credit history. The documentation needed depends on the type of adverse credit history on your report. After filing these documents, you can expect to receive the determination in the next seven to 10 business days. However, it’s important to point out that this doesn’t guarantee a PLUS loan, and the chances of being offered this loan on the basis of mitigating circumstances are very slim.

After one of the above-mentioned scenarios, you are eligible to move onto the next step, which is to apply for PLUS Credit Counseling, which is a program dedicated to helping potential borrowers better understand what borrowing a PLUS loan entails. They aim to explain the meaning of adverse credit history and how to handle a PLUS loan in the future.

Conclusion

Adverse credit history is a record of bad credit history. It includes delinquent debt, late bill payments, charge-offs, large amounts owed, and even bankruptcy. With adverse credit on your credit report, lenders and creditors will immediately deem you an unreliable borrower, thus making it difficult for you to obtain loans, as well as apply for a PLUS loan.

How long does adverse credit last? Adverse credit stays on your credit report for anywhere from seven to 10 years and can be revoked through filing for disagreement, suggesting a “pay-per-delete” to the creditor, or sending a goodwill letter. No matter the method, removing bad credit history is a hard and long process, so the best bet is to try and not get to that point from the get-go.