What Is A Bad Credit Score & What Could Be Affecting It?

What is a bad credit score?

Your credit score is a number that gives lenders an idea of how reliable you are when it comes to borrowing and repaying money. Credit scores are represented as a single three-digit number; generally speaking, the higher the number, the more likely it is that you will be approved for a loan by potential lenders. While no ‘magic’ credit score can guarantee you will be accepted for a loan, borrowers need to avoid a low number to prevent them from being labelled as having a poor credit report. 

Your credit score is calculated using your credit history. This means it is affected by several factors, including the number of accounts you have opened, your total level of debt and your repayment history. However, these factors can differ from person to person, which means it’s not always easy to work out what is behind a particular credit score.

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Our experts have put together an in-depth guide to help shed some more light on what it really means to have a bad credit score and what types of financial activity could cause it to fall.

Your questions, answered

You would be forgiven for assuming that you have just one universal credit score that influences how much money you can borrow but, that’s not the case. In fact, you have dozens of credit scores created when credit reference agencies analyse your credit history in different ways, which can make it hard to keep track of how creditworthy you really are. 

Credit scores are based on reports maintained by three consumer credit bureaus or credit reference agencies. Each uses multiple different models to score each consumer, resulting in multiple different scores. This means you will have three different credit reports (one for each of the bureaus) and many different scores based on each report. Along with the different models used, it is also possible for scores to be affected by the number of bureaus that a lender will report to. Some lenders may only report a credit application to a single bureau, resulting in only a single score being affected by that information.

The important thing to remember is that no single credit score can dictate your financial future. As each score is calculated using a slightly different mathematical formula, they will all vary. Your credit history is represented in various scores that can all be impacted by your behaviour changes. Instead of worrying about a single score, try to keep an eye on the range your scores are falling within and use this as an indicator of how reliable you will appear to potential lenders when they perform a credit check.

Many factors can contribute to your credit score. The reasons behind a low score can vary significantly, depending on your lifestyle and the way you manage your finances. There is such a dramatic variation because your credit score is based largely on your credit history. This, along with other considerations, such as your address history, is personal to you. However, there are several contributing factors commonly flagged as issues for people with low credit scores. These include:

  • You are repeatedly missing payments or making payments late. By failing to meet the terms of your repayment schedule, a lender might assume you are likely to continue with this habit in the future. 
  • You are making multiple credit applications to different sources in a short space of time. According to credit experts, this behaviour suggests you could be experiencing financial difficulties and maybe a higher risk for lenders.
  • Having a large amount of credit available to you can also make you appear too much of a risk as you could rapidly run up large debts without requiring further credit checks. 
  • You have a history of bankruptcy and court judgements. Legal issues such as these suggest you cannot afford your current level of debt and could be living outside your means.
  • You have frequent changes of address, which can suggest you have an unstable lifestyle. 

While all of these factors are directly related to your personal financial activity, it is also possible there are mistakes on your credit report. Errors can have a huge impact on your credit score if they go unflagged, as they could suggest a history of poor financial management where none exists. Ensure you check your credit history frequently to ensure it is correct, particularly if you have been the victim of financial fraud in the past.

Yes, there are many ways to improve your credit score, but there is no quick fix. It often takes time and patience, so if you want to increase your chances of being approved for a loan, you will need to commit to making long-term changes to your spending habits. However, not all methods of improving your credit score take that long to affect your score. Take a look at our list below to find out the most common strategies consumers can adopt when trying to improve their credit score:

  • Register on the electoral roll at your current address: This will help credit reference agencies confirm your identity, which will reduce your perceived risk as a borrower.
  • Close any unused accounts: If you have many credit accounts available to you, your overall credit will be high. Some lenders may feel you won’t be able to cope with the financial responsibility of further credit and might reject a loan application on this basis.
  • Use as little credit as possible: If you may have a large amount of credit available to you, but if you only use a small percentage of this credit, it could indicate to potential lenders that you are financially stable. However, as noted above, low credit utilisation spread across a large number of accounts could hurt your score. If lenders are concerned, you may choose to use all of your available credit in the future.
  • Meet your repayments every month: If possible, you should clear each credit account each month as this shows lenders that you are a reliable borrower. However, you can also boost your score simply by paying off the minimum amount according to your repayment schedule. 
  • Build your credit history: Credit reference agencies analysing a sparse credit report may assign it a lower score with no information to go on. To prove you are a reliable borrower, build up your credit history by opening a bank account, keeping on top of your household bills and taking out an affordable credit card that you can pay off each month. While this is a long-term solution, it is crucial for those with little or no credit history. 

As there are three different credit reference agencies, each of your credit reports will differ slightly. However, there are many types of information that are commonly featured in each report. These include the following:

Personal identification information

One section of your report will include your personal information, such as your address, contact information, date of birth and any changes to your name. 

Credit information

This section includes information that has been given to the bureau by a lender or creditor. It includes details of the types of account you have opened, when they were opened, what loan or credit amount was agreed, the current balance on that account, and your payment history. 

Application history

Your application history will keep track of how many times you have applied for credit, whether you have applied for a loan or mortgage or allowed an employer or landlord to perform a credit check. If the result of the check was the rejection of a credit offer, this information will be recorded and can hurt your credit score. However, even approved applications can lower your score if you make a high number of applications in a short space of time.

Court orders and bankruptcies

If you have been declared bankrupt, been subject to a court order, or have your accounts turned over to a collection agency, this information is also included in your account. Such incidents can have a long-term impact on your credit score.

While your credit report provides a very detailed account of your financial behaviour, as well as some information to ensure you can be identified, many details are excluded from your history. These include the following:  

  • Your marital status
  • Medical details
  • Information on your buying habits
  • Job information, including income details
  • Your education history
  • Your criminal record
  • Current balances of your bank accounts

Each item detailed on your credit report is strictly related to your debts. As such, any information that does not contribute to an understanding of your debt history will not be included. 

It is still possible to get a loan even when you have a bad credit score. The Money Shop’s broker partner specialises in finding fast loans that can be delivered straight into your bank account. Submit your application online today to find out whether you are eligible for a loan. Once your application is approved and you have agreed to the repayment terms, lenders can send you between £50 and £5,000 on the same day. Our broker partner’s panel of lenders makes instant decisions, so you won’t have to wait around to find out whether you’ve been approved. So, if an unexpected expense comes your way, the fast and simple lending process will make it easy for you to bridge that financial gap. 

Borrowing money online is a fast way of meeting any unplanned costs such as bills or family expenses. If you feel confident you can meet the repayments set out when you apply for your loan, then we may be the right choice for you. However, it’s important that you only take out a loan if you are in a suitable financial position. 

Before applying for a loan, consider whether you have an income sufficient to cover your repayment costs, including any interest your loan will incur. You should also consider any factors that may affect your income, such as job security or health issues. If you are concerned that you might struggle to repay the loan in the future, you should consider alternative options, such as borrowing from friends or family or dipping into your savings. 

On the other hand, if you do not feel any alternative options are right for you, and you are confident you can cover the costs of repayments, it might be that borrowing money via The Money Shop is your best solution.

At The Money Shop, we understand that it’s easy to lose sleep over your credit score. We hope our handy guides will help you better understand your credit report to work towards a higher score and a brighter financial future. Please click on the links below to find out more about credit scores, lending options and many other issues you might face when borrowing or paying back a loan. You can also contact our customer service team seven days a week to learn more about our lending process.