What happens when you have a bad credit score in the UK

credit report

Your credit rating is one of the things you should take care of your whole life because it greatly affects your financial options. Personal finance expert and owner of The Money Pig, states ‘A good rating will get you better credit deals and lower loan rates. A bad score, on the other hand, will limit your choices and make it harder to get financing in the future’

What is a credit rating?

Credit rating represents your reputation in the financial industry. Financial institutions look at it when you’re applying for a loan, an overdraft, or a credit extension. Your credit rating gives them an idea of your financial capabilities and the risk involved in lending you money.

There are 3 different credit reference agencies (CRAs) in the U.K. Each one of them uses a different scale to determine your credit score.

  • Equifax (0-700) – a score below 379 is considered poor
  • Experian (0-999) – a score below 720 is considered poor
  • TransUnion (0-710) – a score below 565 is considered poor

Banks and other financial institutions run credit checks by looking at your records provided by any of these agencies. Although these CRAs use different scales, you’ll still get a similar credit rating from any of the 3 CRAs.

Causes of bad credit rating

Bad credit history is rooted in poor money management. For further dissection, here are the possible reasons for getting a bad record:

1. Failure to settle debts

Paying later, or worse, missing a payment, will greatly affect your credit score. CRAs will see that you’re prone to defaulting and they’ll tag you as such by giving you a lower credit rating.

2. Paying only the minimum

Banks and other financial institutions set a minimum monthly payment on debts as stipulated in the contract you signed. You’ll still be abiding by the contract by paying the minimum, but that means you’ll be paying only the interest on your debt. It’ll take a much longer before you can settle your balance and credit agencies may see this as an incapacity to pay.

3. Going over the limit

Credit cards have a spending limit, but you can use it up to a certain amount past the maximum allowance. This is okay for emergency purposes but frequently doing this will alert credit agencies how you spend more than you can pay.

4. Under County Court Judgments (CCJ)

Receiving one is bad news. This means that you haven’t paid a lender and they got tired of hearing your excuses. So, they go to court and requested for an official ruling to force you to pay. If you fail to pay within a month after receiving the CCJ, the record of the judgment will remain in your credit history for six years.

5. Filed for bankruptcy

There may be various reasons for filing bankruptcy, but whatever it is, it will stay in your credit history for at least a good six years.

6. Poor use of credit card

Going over the credit limit is bad, but so is often maxing it out. Credit agencies look at your credit utilisation ratio which involves the percentage of the credit limit you often use. Ideally, you should only be using 30% of your credit limit.

7. Too many loans

Applying for a loan isn’t bad but doing it too often within a short timespan can alert the CRAs about your spending behavior. Credit agencies might think you owe a lot of money or you have a huge money management problem.

8. Identity theft

A lost card should be reported immediately to freeze its use. Failing to do so can result in grave misuse of the account that will hurt your credit score.

Online banking is also prone to hacking and identity theft, so make sure you check your account regularly to closely monitor all transactions.

Asking for your credit rating at least once a year is a good habit. But asking for a full credit check every so often in a year can negatively impact your score.

Consequences of a bad credit rating

Bad credit history can limit your financing options.

Firstly, you’ll have trouble borrowing money from banks. They’ll usually reject your application or offer you loans with high interest rates since you’ve become a high-risk borrower.

Secondly, mortgage rates may also be affected by your bad credit rating. If you’re renting, your landlord might be regularly conducting credit checks to assess your capacity to pay. This can alert them of your status and make them doubt that you’ll be able to pay the rent for the coming weeks.

Some utility providers may also conduct a background check to see if you’ll be able to pay the monthly bills. They may ask for an upfront deposit before they proceed with the installation if they found out about your bad credit history.

Lastly, if you’re a business owner, how you conduct personal finances will also impact your chances of securing business loans. Although personal and business money usually belong to two separate accounts, it will be hard to convince creditors to finance your business if they see how you poorly handle personal money.

What can you do?

All hope is not lost when you have a bad credit rating. The record will remain on your credit file only for a certain time. Bankruptcies last on the file for six years, while missed payments are left on the record for at least three years.

When you have a bad credit score, it’s best to avoid getting another loan and bury yourself into more debt.

The best way toward recovery is to clear all your debts through regular repayments. Check your credit report after you’ve paid off a debt to ensure they’re tagged as ‘satisfied’. This will help CRAs see that you’re doing your best to manage your finances.

If the debt is too big or complex to manage, you can apply for debt consolidation to make repayments easier.


Having a bad credit score can have adverse effects on your financial options. You’ll have a hard time getting loans and even have trouble renting a home.

Bad credit history can be cleared over time, though, since records don’t last forever. Doing regular repayments to clear all your debts will signal credit agencies that you’re doing your best to fix your finances.

Still, it’s best to just find a way to fix your spending habits to make sure you don’t get to deal with a bad credit history.