What is a bad credit score?

Your credit score is an indication of your creditworthiness, signalling to lenders your reliability when it comes to making repayments on things such as credit cards, car finance, loans, and mortgages. Your score is determined by your financial history, with a low score making it more difficult for you to secure credit.

Below we’ll examine what constitutes a bad credit score, explore the potential consequences of having one, and provide you with practical ways to boost it.

What is a bad credit rating?

A bad credit score can result from missed payments, previous financial difficulties, and even having little to no credit history. To calculate your score, credit reference agencies gather information from lenders, public records, and other service providers.

Your full borrowing history is assessed, including any previous credit applications, as well as late or defaulted payments. Defaults, County Court Judgements (CCJs), and Individual Voluntary Arrangements (IVAs) typically have the biggest impact on your credit score, in some cases, negatively impacting it for up to six years.

If you’re unsure of your credit score, you can carry out a free check using one of the three main credit reference agencies: TransUnion, Experian, and Equifax. And if you’ve got questions such as ‘What is a low credit score?’ and ‘What’s a bad credit score in the UK?’ numbers vary between different credit agencies, so here’s a quick breakdown:

• Experian: Your credit score is deemed poor if it’s between 561-720, while 0-560 is classed as very poor.

• Equifax: If your score sits between 439-530, it is considered poor, and 0-438 is very poor.

• TransUnion: A score of 551-565 falls in the ‘needs some work’ category, while 0-550 sits in the ‘needs work’ category.

How might a bad credit score affect me?

When lenders carry out their credit checks, they’re assessing your creditworthiness – in other words, your reliability when it comes to making repayments. A lower score means you’ll be seen as higher risk and may therefore be rejected or offered less favourable terms (including higher interest rates or limited credit amounts).

Alternatively, a higher score means you’ll appear more favourable, resulting in better terms. This might involve higher credit limits, lower interest rates, and better approval chances. It’s worth noting that having a high credit score does not always guarantee being accepted by a lender. Each will have different lending criteria which may impact whether you get approved or not.

How to improve your credit rating

The good news is your credit score isn’t fixed, and there are a variety of ways in which you can work towards improving it. Below we’ll explore a few options to help you get started:

1. Work towards paying off outstanding balances

High levels of existing debt can make it trickier to secure credit. And as mentioned, if you’re approved, you may be subject to limited options.

So, our first tip would be to work towards making regular, consistent payments, signalling to lenders that you’re taking control of your finances. Reducing debt and staying below credit limits can help boost your score, making you a more appealing applicant.

2. Limit applications

Applying for credit multiple times and being rejected can damage your credit score. Too many applications can indicate that you’re struggling financially, making you appear a higher-risk candidate.

To avoid this, we’d recommend spacing out any credit applications and only applying for credit you’re likely to be accepted for. Remember, you can carry out a free credit check to self-assess the likelihood of being approved.

3. Be vigilant for errors

It’s crucial that you regularly monitor your credit report, identifying any inaccuracies or fraudulent activity that could be causing your score to dip. First, ensure all information is accurate and up to date, then keep your eyes peeled for suspicious activity.

If a fraudster gains access to your details, they may attempt to take out credit in your name, and you’d be none the wiser. So, it’s important to do a thorough check from time to time, disputing anything that doesn’t seem right.

4. Make prompt payments

Paying your bills on time can help boost your credit rating, including household bills, phone bills, and any credit repayments. You can set up automatic reminders or automate your payments, ensuring the money leaves your account exactly on time.

And if you’re struggling to stay on top of things, effective monthly budgeting can help. This involves identifying your highest spending areas and seeing where you can cut back, ensuring there’s money in your account for when it’s time to pay.

5. Register to vote

If you’re eligible to vote in the UK, being registered on the electoral roll means that lenders can confirm your identity and home address – two things that help lift your credit score. So, if you’re not yet registered, doing so is a simple way to give your score an extra boost.

6. Build a positive credit history

If you’ve never borrowed before, it can be difficult for lenders to make a judgement on your creditworthiness. So, it’s a good idea to start building up a positive credit history, signalling that you’re able to effectively manage your finances.

One way to do this is by applying for a credit card, making small monthly purchases, then paying it off in full. Please remember to do this responsibly. You might want to speak with your bank to find out if there’s anything they recommend for you.

And remember to be patient. Building a solid credit history takes time, but if you’re patient and consistent, you’ll soon see benefits.

Final key takeaways…

There’s no denying that a bad credit score can be a huge obstacle, but it certainly doesn’t have to be a permanent one. By committing to responsible credit use, making prompt payments, and staying vigilant for any inaccuracies, you’ll be able to steadily raise your score, boosting your creditworthiness in the eyes of future lenders.

And while transforming your report won’t happen overnight, if you stay committed, you’ll be well on your way to securing long-term financial health.

Moneyboat are here to help you stay afloat

Got a less-than-perfect credit history but in need of cash to tide you over until payday? Here at Moneyboat, we offer fair and flexible short-term loans designed to suit your needs.

Assessing each application on a case-by-case basis, we perform credit and affordability checks, evaluating income and outgoings to ensure applicants can comfortably meet the repayment deadlines. Offering affordable and responsible loan solutions, we’re dedicated to helping protect your credit score.

And if you’re looking for more tips and advice, why not head over to the Moneyboat blog? There you’ll find guides such as: how to get a mortgage with bad credit and can I get a credit card with bad credit?.