Having a low credit score can mean it is harder to borrow money, get a mortgage or take out a credit card. Your score could be low because of past debt issues, a lack of credit history or from overstretching yourself financially. There are still borrowing options available to people with bad credit, but the best approach is to try to turn your credit score around. In this article, we cover how to work out if your credit score is bad, how it may have ended up that way and what your next steps should be.
What is a bad credit score?
Your credit score is a numerical rating based on your credit file. Each of the three main credit reference agencies (CRAs) in the UK – Experian, Equifax and TransUnion – can hold a separate credit file and calculate scores in different ways. This means you could have three different credit scores.
A bad credit score suggests that lenders will view your credit file negatively and be more reluctant to allow you to borrow money. A good credit score suggests you have a positive credit file that should open up more and better borrowing options.
No fixed number represents a good or bad credit score, but generally speaking the higher the better. The CRAs do categorise credit scores into different groups, but it is the lender's perspective that really counts. You can see from the table below how the different CRA’s measure and categorise your credit score.
Credit Scores - Experian vs Equifax vs Transunion
| Experian | Equifax | TransUnion | |
| Excellent | 961 - 999 | 811 - 1000 | 628 - 710 |
| Very good | N/A | 671 - 810 | N/A |
| Good | 881 - 960 | 531 - 670 | 604 - 627 |
| Fair | 721 - 880 | 439 - 530 | 566 - 603 |
| Poor | 561 - 720 | 0 - 438 | 551 - 565 |
| Very Poor | 0 - 560 | N/A | 0 - 550 |
What causes a bad credit score?
A bad credit score could be caused by one major issue or a series of small contributory factors. The most common reasons for having a bad credit score include:
- Not having a credit history at all - If you have never borrowed money – such as through a loan, credit card or mortgage – CRAs will not have enough information on you to calculate a good credit score. This also applies if you have only recently turned 18 or moved to the UK. This can be rectified through building credit.
- Using too much credit - At the other end of the scale, using too much credit can be a problem. It suggests to lenders that you are struggling with your finances and are too reliant on borrowing to get by.
- Too many credit applications - Each credit application you make will involve a ‘hard’ check on your credit file that will leave a mark. Future lenders can see these marks and may assume, if there are too many in short succession, that you are desperate for money. You can avoid this by checking your eligibility for a product before you apply, to see how likely you are to get it.
- Missed payments - Missed or late payments can stay on your credit file for up to six years and could damage your credit score. Lenders will likely see a past missed payment as evidence that you could miss one again in the future.
- Bankruptcy, individual voluntary arrangements (IVAs) and county court judgements (CCJs) - These are the most common steps taken if you are unable to pay off a debt and eventually default. They will have a significant negative effect on your credit score.
- Errors on your credit file - Simple mistakes – such as a misspelt name or out-of-date address – can have consequences for your credit score. It is important to check the information held by each of the major CRAs and make sure it is correct.
How will a bad credit score affect you?
A bad credit score could makle it more difficult to borrow money and access credit. This could mean you are unable to get a credit card, loan, overdraft or mortgage at all, or that the borrowing options available to you will be limited. For example, you may not be able to get the best credit card on the market, but you may be able to get a credit builder card or a card for people with bad credit.
It could also be that you are offered a smaller amount of credit or a lower loan amount than you had hoped for, or at a higher rate of interest.
This is all because a bad credit score suggests there is something in your credit file that will make lenders wary of approving your application. It may be so bad that your application is rejected altogether. Alternatively, the lender could choose to balance the risk of lending to you by cutting how much you can borrow or hiking how much interest you need to pay or both.
Ultimately, how your credit score affects you will depend on your borrowing needs, your financial circumstances and the details on your credit file. It could be that a quick fix will solve a lot of your issues, you just need to find the right specialist provider and you may need to invest some time in building your credit back up.
How to keep track of your credit score
You can check your own credit score without leaving a mark on your credit file. There is a free option – at least initially – to check with each of the main CRAs. You can learn more by reading our article ‘The best way to check your credit score for free’.
When you check your credit file, make sure all of the information is correct and you recognise all of the activity. If there is anything incorrect or suspicious, contact the relevant CRA and request for it to be amended or investigated.
You can keep track of your credit score as you take steps to improve your credit and hopefully see the number heading upwards.
How to improve a bad credit score
No matter how low your credit score is or how long you have been struggling with bad credit, there are steps you can take to turn things around. Even a few simple changes can make a sizable difference and dramatically boost your borrowing options. The best place to start is with the tips in our article ‘How to improve your credit score quickly’.
These steps may seem obvious to some, but practising them over a long period of time is the best way to get your credit score back into shape. The principle is to create a history of responsible borrowing to show future lenders that you are a trustworthy and reliable applicant. Over time, your credit score should rise gradually to a point where you can access a wider range of deals and interest rates.
How to borrow with a bad credit score
Taking the time to rebuild credit may not be a viable option for everyone. It is possible to borrow with a bad credit score, but you will need to be aware of the costs and risks involved.
One option could be a credit card for bad credit. You will likely have to manage with a lower credit limit than you would with a standard credit card, plus you may find that the annual percentage rate (APR) is relatively high. This makes it all the more important to budget your spending and ensure you can pay off your balance before the end of the billing period. Failing to do so will mean paying interest on what you owe, which can quickly pile up.
By staying within your credit limit and paying off your balance on time, you will start to add examples of responsible borrowing to your credit file. Eventually, this will boost your credit score and help you access a wider range of deals.
If you are desperate for credit - perhaps to pay off other debts or you have had problems with debt in the past - you should get some independent advice before taking on more borrowing. We explain how to get free help in our article ‘Where to get free debt advice’.
