Bad credit

A bad credit score is a nasty thing to deal with, but we've got you covered.

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If you applied for a loan or credit card and got rejected, you may find yourself confused and uncertain about what to do next. Don’t panic.

Here we explain what you need to know about bad credit, put forward a few possible solutions and help you figure out what your options are.

What does a bad credit score look like?

There’s no universal score below which your credit can be defined “bad”. In the UK, credit history information is collected by a credit reference agency (CRA), each of which uses a different credit score scale. When you’re told a provider is “running credit checks”, what it’s normally doing is checking your credit record with one of these agencies.

These are the three main credit reference agencies in the UK and their credit rating ranges:

  • Experian: 0–999
  • Equifax: 0–700
  • TransUnion (formerly Callcredit): 0–710

The higher the score, the better the rating. Your credit can be considered “bad” when it’s rated either “poor” or “very poor” by the credit reference agencies:

AgencyScoreRating
Experian0–560
561–720
Very poor
Poor
Equifax0–279
280–379
Very poor
Poor
TransUnion (formerly Callcredit)0–550
561–565
Very poor
Poor

Your credit score may be different across the agencies, not only because of the different scale they use, but also because some providers don’t report to all three of them. However, in most cases your credit rating across the three agencies will end up being similar.

Financial products for applicants with bad credit

How does having bad credit history affect me?

A bad credit history is extremely likely to impact your financial choices and options, in more than one way.

First of all, borrowing money becomes harder – you may be offered higher interest rates for credit cards and loans by lenders or your applications may be rejected.

A bad credit score can also have an effect on your housing situation. Mortgages are essentially a type of loan, so buying a house with bad credit history is likely to prove harder and more expensive. Moreover, landlords and letting agencies sometimes run credit checks while assessing a tenant’s applications, so bad credit can be an issue even if you’re renting.

Some utility companies also run credit checks before accepting you as a customer and if you don’t pass them you may have to pay a deposit upfront.

Your personal and business credit scores aren’t completely independent from one another, so if you’re a business owner, your personal credit history is also likely to impact on your chances to finance your business and vice versa.

Why might I have bad credit?

A poor credit score can be the result of bad credit history or of not having a credit history at all.

If you’ve never had credit of any kind, lenders don’t know if you’re the kind of person who keeps up with their payments so you’ll be considered a “risky” customer.

Bad credit history, instead, can result from various different financial difficulties, such as:

  • Late or missed payments. If you have a credit card, for example, you should always try to pay off your monthly bill in full, and if you can’t, make at least the minimum repayment. You can set up a direct debit and choose to clear your balance in full, pay a fixed sum, or make the minimum required payment each billing cycle.
  • Going over your credit limit. Spending more than your credit card allows you will result in a fee and may influence your credit score as well.
  • County Court Judgements (CCJs). If you get one, it means that a lender went to court because you weren’t paying off your debt and the court has officially ruled that you owe the money. You should try and pay within a month if you can: if you don’t, record of the judgement will be kept for six years and will impact your credit score.
  • Bankruptcy. Just like a CCJ, a bankruptcy will stay on your credit report for at least six years.

Even if you’re repaying all your debt on time, there are a bunch of collateral factors that can impact your credit score and make it less than ideal. One is your “credit utilisation ratio”: ideally, you shouldn’t use all the credit you have available, but only a percentage of it. Another is only having credit cards as a variety of different credit sources is preferable. Even the credit profiles of other people you’re financially tied to could have an impact.

It’s also worth noting that a full credit search has a slight (and usually short-lived) negative impact on your credit score. Apply for too many loans/cards in a short space of time and you could find it harder to get approved.

I’ve been refused credit. What should I do now?

Here’s a thing you shouldn’t do: don’t apply for another credit card or loan right away. You may be rejected again and multiple applications could ring alarm bells for prospective lenders. They’ll think you’re desperate for money and will be less likely to lend you some.

It’s a vicious cycle: the more you’re rejected, the more likely you are to be rejected again and it can spiral out of control pretty quickly. It’s better if you stop for a second and consider smarter options. Don’t panic, there are a bunch of things you can do to boost your chances to see your next application accepted.

Try to find out why your application has been rejected. Have you used an eligibility tool before applying? Banks sometimes don’t disclose their exact eligibility criteria for a credit card, but there are eligibility tools around for free (some provided by banks themselves) that can tell you in advance if you’re likely to be accepted for a credit card.

Eligibility tools will ask for your data and run a so-called “soft check”, which is different from a “hard check” because it isn’t reported to the credit rating agencies.

If you haven’t checked the criteria first, you may have been rejected just because you applied for a product that’s only meant for people with an “excellent” credit score.

Second, take a look at your credit score and report. The credit rating agencies will tell you your score for free and usually charge you to get your credit report, but if the score is low and you aren’t sure why, it may be worth the investment.

Once you’re aware of the size of the problem, you can think of how to fix it. If possible, do all you can to improve your score before applying for another loan or credit card.

I want to improve my credit score

Some of the things you can do are pretty straightforward, for example, make sure you’re on the electoral register. Your lender will use it to confirm your residence, so you’re unlikely to get credit if you aren’t.

If you get access to your credit report, check there are no mistakes. If there are, you can get in touch with the credit rating agency and ask it to correct them.

If you’re a tenant who pays their rent on time, you can make it count thanks to a scheme called The Rental Exchange. If you register, your rent payment will improve your Experian credit score.

Finally, credit builder credit cards are specifically meant to help you improve your credit score. Their interest rates are usually pretty high, but if you pay your bill in full every month they’ll help you develop a good credit history.

Frequently asked questions about bad credit

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