What is bad credit?

What is bad credit?

Your credit score can have a big impact on your financial situation, so it’s important to understand how beneficial having a good rating is.

Here we take a look at what bad credit is, what this will impact, and how you can improve it.

What is a credit score?

A credit score is a rating based on your financial history. Each time you make a payment, take out a loan, or apply for a credit card, these will be recorded on your credit history. Banks and other providers will use this score to determine whether you are a low or high-risk customer. The higher your score, the better, and the more chances you have of being accepted by a provider or the better interest rates you will be offered on a loan.

What is a bad credit score?

A bad credit score essentially means you have a poor credit history or none at all. The score is based on how well you can pay back what you have borrowed. Therefore, if you have been in debt or don’t pay your bills on time, this will result in a bad credit rating.

What is a bad credit score?

A bad credit score essentially means you have a poor credit history or none at all. The score is based on how well you can pay back what you have borrowed. Therefore, if you have been in debt or don’t pay your bills on time, this will result in a bad credit rating.

What causes a bad credit rating?

Many things can cause bad credit, but it is predominantly actions that make you appear untrustworthy when it comes to your finances. Here are a few examples of what can cause a bad credit rating:

Being in debt

Having debt doesn’t always cause bad credit. For example, having a mortgage won’t harm your score, as long as you can meet the monthly payments. However, if you are in debt and can’t pay back what you owe, then this can cause a big problem. It shows the bank and lenders that you can’t afford the loans that you are taking out, and therefore, would be a high-risk customer.

Declared bankrupt or have a CCJ

Bankruptcy and a CCJ, along with debt, are the two biggest problems when it comes to your credit score. If you have had either of these, then it doesn’t matter what else you do financially, you will have a bad score. A county court judgement can also remain on your credit report for up to six years if you can’t repay the full amount within a month.

Paying back the minimum on credit cards each month

You may think that as long as you’re paying back what you owe on your credit cards, then it doesn’t matter whether you pay back in full or the minimum amount. Unfortunately, that’s not true. Although it is still good that you are paying what you’ve borrowed back, paying the minimum amount each month only, won’t do your credit score any good. It can show the banks that you don’t have the money to pay your debts in full. If you can clear each bill as it comes, that would be more beneficial.

Taking out multiple applications for loans at the same time

If you apply for several credit cards or multiple current accounts in a short space of time, this will have a negative impact on your score. To banks, this looks like you are financially unstable and need more credit cards just to get by. If you know you will need to take out a loan in the near future, for example, to get a mortgage, be mindful of how many applications you make.

Have zero credit history

If you have no credit history at all, for instance, you don’t have a bank account yet or you pay for everything with cash, then you will also have a bad score. This is mainly because it is difficult to score someone’s credit when they have no history to base it on.

What should I do next?

A bad credit score can have a big impact on your financial situation. Banks and lenders will use this score to decide whether you will be a risk or not. Therefore, it can prevent you from being accepted for a current account or a loan, such as a mortgage, or if you do get accepted for a loan, you will only be offered the lowest rates. This is why it’s important to take back control of your finances and improve your credit score.

A few ways you can boost your score are:

  • Pay your bills on time
  • Only open new accounts when you need them
  • Don’t apply for too much credit
  • Keep your debt low
  • Ensure your details are correct on credit reports