A bad credit rating is when a credit agency negatively reviews your financial history when giving you a rating, known as a credit score. There are three main credit reference agencies in the UK and each one has an independent credit rating system, and a bad (or poor) credit score tends to be low. Having a bad credit rating will make it harder to borrow money.
Since each credit reference agency’s scoring scale is different, there isn’t a fixed number that counts as a bad credit score.
The table below shows the scales for bad credit scores at each of the main UK credit reference agencies.
|Poor||0 - 438||561 - 720||551 - 565|
|Very Poor||-||0 - 560||0 - 550|
What causes a bad credit score?
Several factors may negatively affect your credit score, such as:
- Not having a credit history:It may sound strange, but if you have never borrowed money, had a credit card or mortgage, your credit score is likely to be low. Luckily there are ways to get a credit score, from using a credit card to paying rent.
- Bankruptcy, CCJs and IVAs:Having a county court judgment (CCJ) against you, an individual voluntary arrangement (IVA) or declaring bankruptcy negatively affects your credit score.
- Missing payments: Failing to pay off your debts on time will likely damage your credit score. Missed or late payments are recorded in your credit report for six years and reduce the chance of lenders approving applications for new credit.
- Opening lots of new accounts:Usually, your credit score lowers temporarily when you apply for a new bank account. Although this is usually for a short time, if you keep opening new bank accounts in a short period of time your score won’t have time to catch up.
- Lots of credit applications: If you make many new credit applications, your credit score could face significant damage that will take much longer to recover from. Making several credit applications in a short time suggests to lenders that you are struggling financially and may not be able to afford the repayments.
- Using too much credit: Using up your total credit limit, or going over it, may harm your credit score as it suggests to lenders you are struggling financially and rely too heavily on credit.
» MORE: Why has my credit score gone down?
How does a bad credit score affect me?
Credit scores affect many aspects of your financial life, making them important to consider and keep track of.
Generally speaking, a bad credit score reduces your chances of being accepted for new credit such as a loan, credit card or mortgage. While you may be able to access bad credit loans, lenders that do approve your bad credit application are likely to charge higher interest rates and restrict your credit limit.
That’s because a poor credit score suggests there is a higher risk you won’t be able to repay what you borrow.
You won’t be able to get a loan with no credit check – a no credit check loan – from regulated UK lenders.
» MORE: What credit score do I need for a loan, credit card or mortgage?
Can I improve a bad credit score?
The great news about credit scores is that they are not set in stone. Even if you have a bad credit score right now, there are steps you can take to improve it and boost your eligibility for borrowing money in the future.
A few ways to improve your credit score include:
- Monitoring your credit score regularly:Understanding your credit score and history with borrowing can help you find areas to improve. It also reveals any mistakes or potentially fraudulent activity that may hurt your credit score.
- Repaying on time:Sticking to your repayment schedule shows lenders that you are a reliable borrower and can manage to pay off your debts effectively.
- Use credit sparingly:Keeping your credit usage low could suggest to lenders that you are a responsible borrower and don’t rely on credit to make payments.
It’s important to remember that improving your credit score is a long-term process, so you won’t see changes overnight. But, with commitment and consistency, your credit score can improve gradually and unlock more deals and favourable interest rates.
» MORE: 15 ways to improve your credit score
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