What is a bad credit score?
Your credit score has a major impact on your ability to borrow through mortgages, loans and credit cards. Understanding if your credit score is low is the first step to improving it
A credit score is a number or rating based on how well you manage your finances - such as how much you borrow and whether you make loan and credit repayments on time.
Lenders always look at your credit score before deciding whether to accept your applications for financial products such as mortgages, loans and credit cards.
If your credit score is low then you won’t receive the best deals on offer and in some cases you may be turned down altogether.
What does a bad credit score look like?
There are three main credit reference agencies – Experian, Equifax and TransUnion – and all use a slightly different scoring system. But in all cases, the lower your number the worse your credit score. And conversely, the higher your score the more likely you are to be accepted for credit and be offered the most competitive rates for cards, loans and mortgages, for example.
MoneySuperMarket’s credit monitor service uses TransUnion and credit scores range from 0 to 710. In this case a good credit score would start from around 566, for example. Anything below around 550 would be considered a low credit score. The table below outlines what different credit scores mean for your ability to get a loan or credit card, based on TransUnion data.
Using credit monitor is free, and you can check your rating as often as you like. Checking your score also won’t affect your credit rating in any way.
Why do I have a poor credit score?
There could be several reasons why you have a poor credit score. Here are some of the most common…
Late or missed payments. If you don’t keep up with your bills it’s likely to hit your credit score. Setting up direct debits is a good way to ensure you don’t miss any payments
County Court Judgements. If you’ve defaulted on an account you might be taken to court for repayment. This can stay as a negative mark on your credit file for years
Error on your credit file. Mistakes happen, but you can get them corrected by contacting the company involved and leaving a note of correction on your file
Using too much of your available credit. If you’re up to your credit limit every month it can act as a red flag to other potential lenders that you’re overstretching your finances
Old credit accounts left open. It’s a good idea to close unused credit card accounts – particularly if they are joint ones linked to someone else. It can give potential lenders confidence that you’re on top of your accounts
Little or no credit history. If you’ve just turned 18, recently moved to the UK, or have never previously borrowed money, you won’t have had the chance to build up a credit score and evidence responsible use of credit
How will a bad credit score affect me?
A bad credit score can affect you more than you might think because it impacts every area of your life where you might need credit.
A bad credit score could affect you in several ways, such as you’ll…
Only be able to get credit cards, loans and mortgages at high interest rates
Find there are fewer financial products available to you
Face lower credit limits, such as the amount you’re allowed to borrow on a credit card
Be completely rejected from financial products when you apply
It can be easy to underestimate how many areas in life we need credit. As well as obvious examples such as credit cards, loans and mortgages, even mobile phone contracts and an authorised overdraft facility on a current account, will generally involve companies running a credit check on you before deciding if they wish to proceed.
How can I keep track of my credit score?
The easiest way to keep track of your credit score is to use our free credit monitor service. It’s quick and easy to sign-up and allows you to check your credit score as often as you like without leaving any mark on your credit file or affecting your rating.
Credit scores are updated monthly, so you could set a calendar reminder to check your score at a set date each month and see how it changes.
Credit monitor keeps tabs on your credit file and will inform you of any suspicious looking activity, such as fraudsters trying to open credit cards in your name. It also provides helpful hints and tips on how to improve your credit score – which can open the doors to more choice when it comes to borrowing – and better rates and deals.
How can I improve my credit score?
If you have a low credit score, don’t despair – there are lots of ways you can improve it.
The first step is to get hold of your credit report and see where you stand.
You can check for any errors, which could be affecting your score, and contact the relevant companies involved to rectify the mistakes.
Another quick way to boost your credit score is to register on the electoral roll – which often gets forgotten when you move house.
In addition to this there are lots more ways to improve your score – although some take more time and work. These include things such as closing down unused credit accounts, taking out a specialist credit builder credit card which, when used well, will prove to lenders over time that you can responsibly handle credit.
Other useful guides
Want to find out more about credit? We have a range of useful and informative guides:
Check your credit score with MoneySuperMarket’s credit monitor
Even if you already know your credit score our free credit monitor service is a useful tool which can help you keep on top of your score and boost it as high as possible.
It’s straightforward to use and as well as quickly giving you an up-to-date credit score can also provide handy hints and tips on how you can improve it.