Your credit rating is important. It’s the data that is checked when you make an application for credit, whether that’s to borrow a loan or even something as simple as setting up a mobile phone contract. A bad credit rating could be the result of a single financial error, or it may be that multiple difficult moments have led you to have a poor credit score. Whatever has caused a bad credit score it’s always possible to improve it.
What is a bad credit score?
There is no single answer in terms of what makes a “bad” credit score. The main credit referencing agencies use different scoring systems to determine whether your rating is low or high. Equifax, for example, scores between 0 and 700. Anything above 380 is considered to be a fair credit score while 379 and below is poor or very poor. Banks and other lenders don’t use the scoring systems that have been set by credit rating agencies. Instead they will use the information on your credit file to judge against their own internal criteria and scoring systems. Factors that may negatively influence your credit score include:
- Going bankrupt
- Missing loan or credit card payments
- County Court Judgments against you
- Late payments on existing credit agreements
- No credit history
Check my credit rating
If you want to find out what kind of credit score you have then you will need to check it. This can be the first step towards improving your credit score. The easiest way to check a credit rating is via one of the credit rating agencies:
These are the only three agencies in the UK that compile data for individual credit histories. If you don’t check your credit rating directly with one of these credit rating agencies, other organisations that offer information about your credit score will be using one of these as a source. As an example of the differences between the different scoring systems, a “fair” credit rating would be:
721—880 with Experian (out of 999)
380—419 with Equifax (out of 700)
566–603 with TransUnion (out of 750)
Credit score explained
“Credit score” is actually a slightly misleading term, as there is no single universal credit score for each individual in the UK. Instead, you have a credit file, which is compiled by one of the big three credit rating agencies. These agencies will assemble your credit history from a broad spectrum of information. Each will generate a score from that for you – but, as mentioned, all those scores tend to be different and lenders and banks don’t use them. There are a range of different factors that could have an impact on the kind of credit score that you have. These include:
- How much borrowing you currently have
- How long you’ve had accounts
- Whether you have missed any repayments in the past
- The number of hard searches against your credit file
- The credit accounts that you have
- How much of your credit you’re using e.g. what is available compared to how much you’re actually borrowing
What is a good credit score?
If you’re looking at the scores generated by the main credit reference agencies, a “good” credit score would be:
881—960 with Experian (out of 999)
420—465 with Equifax (out of 700)
604–627 with TransUnion (out of 750)
However, lenders have their own criteria, which may mean that your credit file produces a different result according to their scores. If you have some debt – but not too much – you keep up with your debt repayments, all your credit file information is correct and you are borrowing affordably then you are much more likely to have a good credit score than not.
How to improve a credit score
Anyone can improve their credit score. Your credit history is constantly evolving and if you want a better credit score next year than you currently have now there are some simple ways to do it.
- Pay more than the minimum every month. If you’re actively reducing your debt then your credit score will improve
- Make sure you meet all your obligations. From payments on a mobile phone contract to credit card repayments, don’t miss a single one
- Disconnect your report from other people. It could be a former housemate or an ex-partner, if your credit files are connected because of marriage or shared bills their financial behaviour could be dragging your score down
- Don’t make any credit applications. Especially if you’ve been rejected for credit recently, wait at least six months before trying again
- Check your information is correct. Name, addresses, electoral roll and employer data all need to be correct or your score could be affected
- Close unused cards or accounts. If you no longer need them they are an identity fraud risk and may indicate to a lender that you don’t really require any more credit.
Managing your credit score is important today. Whether you’re looking to borrow a loan, or hoping to get on the property ladder in the near future, a strong credit score can help you to do it.