What is a bad credit score?
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This is calculated by one of three Credit Reference Agencies – TransUnion, Equifax or Experian – depending on who you choose to check your credit report with. Your credit score is a number that represents something very important – your financial history. The score you’re shown by Credit Reference Agencies is an interpretation of your financial history, and shows you how favourably, or unfavourably, as the case may be, lenders are likely to view you if you apply for credit.
What is a bad credit score?
A credit score is an interpretation of your financial history, this being made up of each record on your credit report. In particular, your credit report includes information about what you’ve borrowed and how you have done when paying it back.
If you have a credit score that the Credit Reference Agency you’re using classifies as “bad” or “poor”, then this is usually caused by negative behaviour in your financial past. A late payment or defaulted account will impact your credit score. Any type of insolvency – such as bankruptcy, an individual voluntary arrangement (IVA) or debt relief order (DRO) will also affect your score. Something as small as incorrect details or not being listed on the electoral can also have a negative impact.
What number constitutes a “bad” credit score varies between Credit Reference Agencies. Every Credit Reference Agency scores differently. For example, Experian scores you out of 999 while Equifax scores out of 700. If you choose to use a free service, such as Noddle, the scoring system is very different, scoring you out of 5 – with 1 being a bad credit score number.
Let’s use Experian as an example. A score between 0 – 279, is in the very poor range. This means will likely struggle to find a lender who will accept your application for a loan or credit. There are some lenders for whom a very poor financial history is not an issue, but you may find yourself paying a higher interest rate or only able to borrow a very small amount.
Is there such a thing as a universal credit score?
No, each Credit Reference Agency provides a different score and interprets information differently. But each of the scores you receive should sit in the same sort of area – a good score on Equifax should mean you have an equivalent “good” score on Experian, for example.
What could contribute to bad credit score?
A number of things factor into your credit score, but if it is be low or poor it could be down to these:
- Late or missed payments – A late or missed payment on an account in your name will be recorded on your credit report and impact the score you see.
- Defaulted accounts – When an account remains in arrears for a certain length of time, the lender may report a default to the credit reference agencies. Defaults are listed for six years on your credit report and can have an impact until they are removed.
- Insolvency arrangements or debt management plans (DMPs) – If you need to take on a Debt Management Plan or apply for a bankruptcy, these, too, are recorded on your credit report and are also listed for six years from the date they are set up.
- Applying for too many credit products at once – If those you are applying with perform a “hard search” on you, then each of these will be recorded on your credit report. If you apply for lots of different types of credit at once or with multiple lenders this could raise a red flag with future lenders.
- Having incorrect details listed – Such as your address for the past three years. If you have conflicting information on your credit report then this can make it more difficult for lenders to verify your identity and will be reflected in your credit score.
- Not being enrolled on the electoral register – Registering to vote is an easy way for lenders to verify your address. Not being enrolled on the electoral register therefore makes it more difficult and is reflected in your credit score.
- Fraudulent credit accounts – If a fraudster gets hold of your details and applies for credit in your name this can be listed on your report and then impact you negatively if they do not pay back the borrowed amount. If you spot any fraudulent accounts you should notify the Credit Reference Agency and the lender, then raise an incident with Action Fraud.
What is listed on your credit report?
A great deal of credit products are listed on your credit report. These include:
- Mortgage – Your mortgage payments are detailed on your credit report and can affect your credit score if you miss a payment.
- Loans – Everything from payday loans to larger personal loans are listed.
- Credit cards – Your credit cards and repayment history are all listed on your credit report.
- Mobile phone contract – If you’ve taken on a pay monthly contract with your mobile phone provider this counts as credit and is listed on your report.
- Car finance – Whether you’ve taken on a hire purchase or PCP deal, these will feature and impact your credit score.
- Utility bills – Some providers are listed on credit reports and your payments for your gas, electricity and water may be tracked.
- Overdrafts – If you have an agreed overdraft this will show on your credit report and feature payment status if used.
- Store cards and buy now pay later deals – If you buy clothes or electronics and pay for them later, these will be listed on your report.
What is not listed on your credit report?
A number of things are not found on your credit report that may surprise you.
- Student loans – These are not listed on credit reports and so the amount you’ve borrowed and how much you still owe are not considered when you apply for credit.
- Some utility providers – Not all providers share the payment details of their customers with the Credit Reference Agencies.
- Rent payments – These are not usually listed on a credit report.
- Council tax – Payments for this are not listed on your credit report.
- Bank accounts – Not all banks will report to the Credit Reference Agencies as standard. You may find you need to have a certain type of account with them for them to provide information to the bureaus.
That means these will not necessarily impact or contribute towards a bad credit score.
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