A bad credit score usually means there are problems with your credit history. This can include missing or incorrect information, a history of late payments, or not having enough credit history in the first place. To find out what’s going on, checking your full credit report is a good place to start.
But what is considered a bad credit score? And if you’ve checked yours and it looks low, how can you fix it?
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If you have a poor credit score and think you’ll need to borrow money in the future it’s worth giving yourself enough time to fix it first. Even if you have a bad credit score it may still be possible to borrow money, but a better score will mean it is more likely your application will be successful and you will probably be able to borrow at a cheaper interest rate too.
What is a bad credit score?
A bad credit score sits in a poorer rating from a credit reference agency, usually referred to as ‘poor’ or ‘very poor’. If your credit score is poor, a lender will likely see you as riskier to lend to. You may receive a higher interest rate, or your application could be rejected altogether.
The three credit reference agencies in the UK – Equifax, Experian and TransUnion – each calculate credit scores differently, using different ranges. The table below shows the range your credit score needs to sit in to usually be considered bad with each firm.
| Equifax | Experian | TransUnion | |
|---|---|---|---|
| Poor* | 439-530 | 561 – 720 | 551 – 565 |
| Very Poor* | 0-438 | 0 – 560 | 0 – 550 |
*Equifax refers to its bottom two ranges as ‘fair’ and ‘poor’.
What causes a bad credit score?
There are a number of factors that can cause a low credit score, ranging from missed payments on a credit account to making too many applications for credit over a short time.
The factors that can affect your credit score negatively include:
Your credit score may be low if you don’t have a credit history, for example if you’ve never taken out credit before. It’s also possible that you may have no credit score at all.
People who have no credit history can include young people and people who have moved to the UK from abroad. Your credit history could also be limited if you’ve borrowed money in the past but not recently, because most data only stays on your report for six years.
If you have limited or no credit history, there are products available such as credit builder credit cards that can help you start establishing one.
If you’ve declared bankruptcy, have a county court judgment (CCJ) against you or have entered into an individual voluntary arrangement (IVA), your credit score will be damaged.
Each of these arrangements indicates severe problems with paying back debt in the past. These arrangements are usually recorded on public databases, which credit reference agencies search when compiling your credit report.
If a lender closes your account after giving you a default notice, this will also severely damage your credit score.
Failing to pay your debts on time will likely damage your credit score. If a payment gets recorded as late or missed on your credit report, it stays there for six years and your credit score will drop.
But if you bring your account up to date and make your future payments on time, the effects of a late or missed payment should reduce as the months go by. Lenders are typically more concerned about your most recent credit history, which is reflected in how your credit score is calculated.
When you apply for credit, the lender will usually run a hard credit check, which is a full look at your credit history. Hard credit checks are visible on your credit report, so if you then go on to apply for credit with a different lender, they’ll be able to see previous searches.
While a single hard search isn’t likely to affect your credit score dramatically, making multiple applications for credit over a short time can decrease your score. It suggests to lenders that you’re struggling financially and rely on credit to meet your financial obligations.
Opening a new bank account should not affect your credit score unless it comes with an overdraft. Then the bank will usually do a hard search and your credit score may drop as a result – but the effect should be short-lived.
That being said, because multiple hard searches over a short time can harm your credit score, you should limit applications for new bank accounts over a short time.
If you have an overdraft or credit card, it’s possible to spend up to the arranged limit that you’ve agreed with the firm.
But it can harm your credit score if you’re using too much of your available credit balances. It can suggest to lenders that you’re struggling financially and too reliant on credit.
It’s important to understand credit utilisation, which is the percentage of your total available credit that you’re using across all of your credit cards. A lower credit utilisation improves your credit score because it suggests you have your finances under good control.
» MORE: Why has my credit score gone down?
How does a bad credit score affect you?
If you need to apply for credit, such as a personal loan, credit card or mortgage, a bad credit score will probably affect you. While your score doesn’t tell you for sure which way your application will go, it’s useful because it shows you how the lender may view your credit history.
A bad credit score means it is less likely your credit application will be accepted – and even if it is successful, you may receive a higher interest rate.
You could still apply for products designed for people with a poorer or more limited credit history, such as credit builder credit cards or bad credit loans.
However, these products often come with higher interest rates and lower credit limits, accounting for the increased risk that the debt won’t be repaid.
» MORE: What credit score do I need for a loan, credit card or mortgage?
How to fix a bad credit score
Don’t be disheartened if you have a bad credit score. You can fix it over time by taking steps such as staying up to date with your repayments and keeping your balances low. This can help boost your eligibility for borrowing money in the future.
A better credit score often means you’ll have more options for borrowing money at cheaper interest rates, so it’s worth thinking about how to improve yours.
Your first step is understanding where your credit score sits at the moment with each of the credit reference agencies. You can do this for free – and depending on the service, you can also get notified of any changes in your score. This helps you stay on top of your credit file and spot any mistakes or potentially fraudulent activity quickly.
Certain services, such as ClearScore and Credit Karma, may give you insights about the elements of your credit file that you could improve. For example, you’re not on the electoral roll.
Your credit score reflects and goes hand-in-hand with the data in your full credit report. If your score changes unexpectedly or isn’t where you’d like it to be, it’s a good move to investigate by requesting a free credit report from the relevant credit reference agency.
It’s important to check for any errors, such as a payment recorded as late that you actually made on time. Fixing these can boost your score.
If you don’t have much credit history, you may be able to build one gradually by taking out smaller types of credit, such as a mobile phone contract or a credit builder credit card.
It can be easier to be accepted for a mobile phone contract than a loan, for example. And because it’s still a type of credit, making your repayments on time can help you improve a bad credit score. However, at the same time, missing repayments will decrease your score.
Credit builder credit cards have lower credit limits and higher interest rates, but if you pay off the full balance on time each month your debt shouldn’t become costly. It’s important that you don’t spend more than you need to, because if you can’t make at least the minimum repayments your credit score will be damaged.
Even though products like these are designed for people with a less-than-perfect credit history, lenders will still usually run a hard credit check when you apply. So it’s a good idea to check your eligibility first, which should involve only a soft search.
Keeping your credit usage low could suggest to lenders that you’re a responsible borrower who doesn’t rely on credit to meet your financial obligations.
Your credit utilisation is the percentage of total credit that you’re using across all of your credit cards. If you have one credit card with a £250 balance and a £1,000 credit limit, your credit utilisation is 25%.
Experts generally suggest that keeping your credit utilisation below 25% is good for your credit score.
While amending errors and registering to vote can be quicker ways to boost your credit score, it usually takes time to improve, especially if you’ve struggled to make payments in the past.
Depending on the type of credit you want to apply for, it’s important to give yourself enough time to boost your score. For a mortgage, it can be a good idea to check your score at least a year before applying. This gives you time to check your full report and take action to improve it if needed.
Improving your credit score is a long-term process, so you won’t see changes overnight. But you’ll gradually build a good credit history by keeping your credit accounts up to date and making repayments on time.
And remember that your credit report shows the last six years of credit history, so the impact of past problems with making payments lessens over time.
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