What Is A Bad Credit Score Or A Bad Credit Rating
The lower the credit score number the worse your credit is. In the UK, having bad credit can impact how many lenders are willing to give you a credit card, mortgage or bank loan.
A bad credit score with Equifax is under 379. A Poor credit score with Equifax is 280-379, and a Very Poor credit score is under 279. TransUnion categorises a poor credit score as being between 551-565, and a Very Poor rating is 0-550. A very poor credit score on Experian is between 0-560, and a poor credit rating is between 561-720.
Why Having Good Credit Is Important
Having good credit can help you in many ways. The most obvious is by helping you qualify for better interest rates on loans.
According to May 2020 data from myFICO, increasing your credit score from a range of 620639 to 760850 could lower your monthly payment by nearly $200. Thats a big deal!
But even if you arent planning to apply for a mortgage or another form of financing, your credit scores can still affect your life. Your credit report information could affect your home and car insurance rates, your eligibility for rental housing, and depending on where you live, it may potentially affect your job applications.
With so many ways that your credit report and scores can influence your life, its important to keep close tabs on both and take quick action when you notice credit file mistakes.
Cancel Unused Credit And Store Cards
These can kill your application. Access to too much available credit, even if it isn’t used, can be a problem. If you have a range of unused credit cards and lots of available credit, it could be a good idea to cancel some of them. This lowers your available credit and should help.
However, just to complicate things, long-standing accounts with good credit histories can be a benefit to your credit score, so they’re often best left open. There’s no definitive answer as to whether you should close down your old cards, because all lenders are different. But, look to strike a happy medium if you’ve lots and lots of unused credit, close some cards down, but don’t close ’em all. And above all, don’t max out.
If you need to cut credit card debt costs, first check if the old cards will let you shift debt from other cards to them cheaply, as you then won’t need to apply for new credit. This helps your credit file, and means you’re using your existing credit more efficiently. See Balance Transfers for full info.
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A Bad Credit Rating Isnt Always The Result Of A Bad Credit History
Some people have a bad credit history and rating because they havenât managed their credit very well in the past. Lenders therefore see them as more of a risk, and the only solution is to follow the advice below. However, some people might find they have a bad credit rating due to a lack of credit history. For example, if youâre new to credit or havenât used credit much before, there wonât be much of a record of how responsible you are when it comes to borrowing money. In either case, there are many credit-building products out there, such as credit cards designed for those with limited credit history. When used responsibly, theyâre a great way to help give your credit rating a boost and flesh out your credit file. You can compare the credit cards you are eligible for at TotallyMoney
You Pay More For Your Loan
Not only will a good credit score help you bank with more reputable institutions, but it also gives you the best interest rates on loans.
According to Ulzheimer, consumers get the best deals on APR for auto loans with a score of 720 or higher, and for mortgages, 750 or higher.
Let’s say you’re applying for a mortgage with a FICO score of 620. For a $300,000 house, you might pay about 4.8% in interest with the current rates, whereas a buyer with a score between 760 and 850 would borrow at roughly 3.2% APR.
A 1.6% difference sounds small, but in this case your lower credit score would increase your mortgage payment by about $275 per month costing you $99,000 over a 30-year term.
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What Is The Best Credit Card For Poor Credit Rating
A credit card for bad credit can help you build your credit score. If you want to enhance your credit score and raise it from a poor rating to excellent, there are credit cards designed to help you.
Even if youre in the lowest credit score bracket, a credit card is a good place to start building up your reputation for credit reliability.
The best cards for bad credit are ones where you spend money up to a certain limit, and pay back what you borrow on time, just like normal credit cards. But the most suitable ones for bad credit have low credit limits and high interest rates.
Although there are many different types of credit cards available, if you have a very poor credit score range, you can opt for a credit card for customers with bad credit. If you use this card to repair your credit history, youll increase your credit score over time.
Heres a few bad credit credit card options:
The Aqua Classic Card. This card is designed for people who have bad credit and want to improve their credit score. It has a spending limit of £1,200 and an interest rate of 37.95%
The Barclaycard Forward Card. This card is also designed for people with a bad credit rating, who want to improve their credit score. It has a spending limit of £1,200 and an interest rate of 33.9%.
Can I Apply For A Credit Card If I Have No Credit History
If you have no credit history, this means youre essentially invisible to lenders and credit referencing agencies. This means they have no way of knowing how you manage your money of how your handle credit. If you want to take out a credit card, you may need to apply for a credit card for bad credit this can then be used to help build up your credit score. If you have no credit history, using credit correctly might see your score improve more quickly than if you have a bad credit history.
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What Causes A Bad Credit History And Rating
Some things that damage your credit rating are more well known than others, such as missed or late payments. While instances like these cause heavy hits to your credit rating, a one-off shouldnât mean damage beyond repair. Just set up direct debits to prevent this happening repeatedly. On the other hand, below are five of the biggest credit no-nos that can often kill your credit rating for years.
A County Court Judgment is where youâre taken to court due to an outstanding debt youâre not paying off. A payment plan will be set up, so the lender can get their money back. If a judgment is made against you, it wonât appear on your credit report if you pay the total balance within one month. However, if you canât do this, the CCJ will be part of your credit history for six years â even if youâve long since paid off the debt â and can make it very difficult for you to get credit.
If youâre struggling to keep up with your repayments, you can sometimes come up with a special arrangement with your lender to pay off your debt in a more manageable way. This is often called a Debt Management Plan. You can do this directly with your lender, or pay a licensed company to do it on your behalf. However, be careful. While a DMP is still preferable to not paying your debts at all, some lenders could still view your having to use one as a sign of poor money management.
What Does It Mean If Your Credit Score Is Low
A lower credit score means you might be seen as a high risk borrower. For example, if your credit report shows that youâve defaulted on a previous debt, your credit score is likely to be lower.
If you have a lower score, lenders might offer you credit at a higher interest rate or reject your credit application altogether. But don’t worry, there are plenty of steps you can take to improve your score.
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How To Establish Or Maintain A Good Score
If you’re trying to build credit from scratch, there are a few ways to get started. The first, and most common, is to open a credit card. That can help you establish an official line of credit and begin building a good credit history, which is reported to the three credit bureaus.
If you’re just getting started, you may not be allowed to open a new card on your own, in which case you could, with permission, use someone else’s. This process is called credit card “piggybacking” and involves becoming an authorized user on someone else’s card: The primary cardholder agrees to add you as a secondary user so you can reap the benefits of good credit.
The card’s payment history then becomes part of your own credit report, NerdWallet explains: “So, even if you were 19 years old and couldn’t qualify for credit on your own, you could have a credit card.”
This method is useful if your goal is to gain experience using plastic, or if you lack enough credit history for a specific goal. It isn’t intended to dispel or rehabilitate poor credit.
Another option: Getting a , which is intended to teach young adults and children good credit habits by allowing them to use a card connected to an adult’s account.
Any misstep on behalf on the junior cardholder is reflected on the adult’s account, though. And charge-offs, late payments and debts sent to a collection agency remain listed for seven years.
Use A Credit Builder Credit Card
If you’ve never borrowed money before, you might assume this means you have a good credit score. In fact, this is unlikely to be true.
That’s because when assessing your application, lenders look for evidence that you’ll be able to pay back what you borrow, so having no record of successful repayments can count against you.
Experian estimates 5.8 million people have a thin file in the UK. This means that credit reference agencies dont hold any information on you which makes you invisible to the financial system. This can lead to not being able to access products such as a mortgage, loan or credit card, or facing higher costs than others.
Consequently, you may find that you’re turned down for credit cards and loans especially those on the cheapest rates – even if you could comfortably afford to pay them back.
One solution is to take out a credit card specifically designed to help you build – or rebuild – your credit history.
However, as these ‘credit builder’ cards are aimed at higher-risk customers, APRs tend to be very high, so you should never use them to borrow.
How long will this take to boost my score?
It takes six to 12 months of paying on time for someone whos never officially borrowed before to improve their credit score.
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Does Being A Guarantor Appear On Your Credit Report
The act of becoming a guarantor doesnât, by itself, normally appear on your credit report. But there are ways being a guarantor could affect your report:
- If the borrower canât make their repayments, the responsibility for paying them will fall on you â and this will form part of your credit record.
- Becoming a guarantor may create a financial association between you and the borrower. Any financial associations will appear on your credit report, and companies may check their credit history when deciding whether to approve you.
Itâs important to remember that guarantor agreements can vary from lender to lender. Check the terms carefully. If youâre still unsure about anything or how it could affect your credit report, speak to the lender before agreeing to anything.
Short Or No Credit History
The length of your credit history, including the age of your oldest credit account, makes a difference in your credit score. If youve never had a credit card or taken out a loan before, you may have a lower score. Typically, the longer youve had a credit history, the higher your score will be. Your credit history makes up 15% of your FICO score and is calculated using the age of your newest credit account, your oldest account, and the average age of all accounts. Lenders prefer a longer credit history because it provides evidence of how youve handled debt in the pasthaving no or a short credit history makes you riskier.
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How Lenders Decide Whether To Give You Credit
When you apply for a loan or other type of credit, such as a credit card, the lender has to decide whether or not to lend to you. Creditors use different things to help them decide whether or not you are a good risk.
On this page you can find out:
- how your credit rating is decided
- what information a creditor can find out about you to help them decide whether to lend to you
- what you can do if you are refused credit, including how to correct wrong information on your credit reference file
- how to get a copy of your credit reference file
- how fraud can affect your credit rating
- how to get credit if youve got a low credit score.
To find out more about taking out a loan or other types of credit, see Further help and information.
What Is A Bad Credit Score
Based on the FICO® Score range of 300 to 850, a credit score below 669 is considered to be either fair or bad. Lenders often refer to this group as “subprime,” which indicates borrowers who may have a hard time repaying a loan.
A bad credit score can be compared to a bad grade in school, a failing grade on a driving test, or getting bad results for any other type of assessment that uses a numerical ranking to judge performance. Getting the news that your credit scores might be less than stellar can be disheartening, but the good news is you are not stuck with your bad credit scores. Make improvements to a few key credit management habits, and over time, your score will improve.
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Reasons You Could Have Bad Credit
There are a number of reasons why you could have bad credit, for example:
- Breaking your credit agreement If you missed any payments or went over your credit limit, this will break the terms of your credit agreement and be noted on your credit file.
- Getting into financial difficulty Each repayment you miss is noted on your credit file. Missing multiple repayments can cause your score to quickly drop, particularly if you miss a number of consecutive repayments.
- Being close to your credit limit The amount of credit you use also impacts your score. Always use your card sensibly and make your payments on time.
- Having no credit history If youve never taken on any form of credit before, lenders and credit reference agencies have no way of knowing how you handle credit. This means youll likely have a low credit score.
- Having too many credit searches if you apply for credit many times this leaves a lot of hard searches on your credit file. Too many of these searches in a short space of time can lower your credit score.
- Public Information If you have recently had any County Court Judgements or have filed for Bankruptcy in the last 6 years this will adversely impact your ability to get credit.
If any of the above applies to you, bad credit credit cards could be an option to help improve your credit rating.
Reasons Why Your Credit Score Goes Down
If you don’t have much — or any — experience with credit at this stage of your life, you may wonder why people worry if their credit scores go down. Put simply, without a good credit score, your ability to get credit at an affordable rate will likely be severely limited. “Creditors want to lend money to people who they believe are likely to repay their loans so that they can keep on making money — not losing theirs,” said Matthew Jimenez, CEO of My Credit Repair Clinic. “So lenders use your credit score as a reference when deciding whether someone can get a loan, and what interest rate should be charged on that loan.”
Your credit score is made up of a variety of factors that are weighted according to the credit scoring model being used. The most common credit-scoring model to date is FICO, created by the Fair Isaac Corporation, which is used by over 90% of top lenders.
And while most people know that irresponsible use of credit can cause your credit score to dip or even plummet, bad credit behavior isn’t the only reason your score might go south.