What is the impact of a bad credit score?

In this article, we help take some of the fears and mysteries away from credit scores and give you a few tips on how to increase your credit score over time.

• Understanding credit score providers
• How to check a credit score - for free
• Why is my credit score bad?
• How does your bad credit score affect you?
• How to improve your credit score
• A credit score is for life

Understanding credit score providers

They are TransUnion, Experian and Equifax in the UK. They hold both personal and financial information about you, which lenders then use when you seek to borrow money.

It is important to check your credit report thoroughly, as even small errors, such as an outdated address, can cause problems. Each credit bureau uses different factors and calculations to work out scores. That’s why your credit score can vary depending on which company you use to view your credit report.

By regularly checking your credit report, you can pick up mistakes on your record, view searches made on your file, suspicious activity and more. This combined with budgeting, healthy spending habits and sticking to your financial goals are all ways to take care of your financial health.

How to check a cred it score - for free 

Checking your credit report for free is possible. Credit bureaus are legally required to provide a statutory credit report when requested. This free, basic version of your credit report is offered on a one-off basis. But, it won’t have details such as your score.  More detailed reports are also available. While you have to pay for some of these on a monthly basis, most will offer a free trial period (normally 14 days).

There are also free credit reports in the UK. Here’s how you can check your credit score with the three main providers.

• Use Credit Karma to see your credit score through TransUnion, with weekly updates.
• At Experian, sign up for a free account to see your credit score, which updates every thirty days.
• Equifax also offers free credit scores and reports through ClearScore.

You can use MustCompare to find and compare credit reports if you're looking for credit report providers.

Why is my credit score bad?

Credit scores can be affected by factors such as:

• Out-of-date personal details - for example, you recently moved home and did not update your address.
• You’re not on the electoral register or roll.
• Little or no credit history - for example, you have recently moved to the UK or have just turned 18.
• Excessive use of credit available to you - for example, you often get very close to or hit the credit limit available on your credit card.
• Too many recent hard searches - for example, you made multiple personal loan applications in quick succession.
• Missing a payment or defaulting - for example, you missed a monthly payment for a short term loan.
• Declaring or filing for bankruptcy. Or you have a County Court Judgement against your name.

In 2022 Experian found around five million Brits are said to be ‘credit invisible’, meaning they have no credit history on record. Additionally, knowing what is a good credit score and what is a bad credit score can be confusing, due to the 3 main UK credit bureaus using differing scoring systems.

How does your bad credit score affect you?

A good credit score is needed when it comes to applying for mortgages to buy a house, applying for credit cards or increasing your credit card limit, loan applications and even certain job roles. Credit reports and scores are used by most direct lenders and brokers. Banks, mobile phone providers and financial institutions can assess your credit application by checking your credit report and score.

If you have a poor credit score, you may struggle to secure a car finance agreement for a new car or miss out on the best rates on credit card products. However, it is not the only factor lenders and credit institutions look at. Perhaps more important are affordability checks and scores to ensure realistic or affordable repayments - which is why even with a bad credit score, there is a chance you may still be offered credit.

How to improve your credit score

If your credit score is currently poor, remember it's not permanent and it can be changed over time. Managing your money effectively and committing to monitoring your credit score will make a difference. In time, this may mean access to loans and credit cards will broaden, or you will be able to access better deals. Here are some ways to improve your credit score:

• Make sure you are on the electoral roll, as this makes it easier for lenders to trace you at an address.
• Check your credit report for any errors, and make sure to correct them as soon as you can.
• Make sure your name is on the household bills, such as utility bills.
• Try to avoid making multiple applications for credit in one go. Using a short term loan comparison tool for example, can help reduce your search and avoid multiple applications.
• Pay your bills on time and in full. Consider setting up reminders or use direct debits to make payments.
• Make more than the minimum payments required on your credit cards – pay them off in full each month if you can.
• Closely monitor your accounts to make sure no financial fraud is occurring.

Another action that may improve your credit score is using eligibility checkers or services that provide a soft search against your credit history rather than lenders undertaking a hard search. Find out more on the difference between soft and hard credit checks with our deep dive guide into this issue.

A credit score is for life

Now that you have taken the time to understand and see ways to improve your credit score try make checking it regularly a habit. Doing so will help you keep up with any issues that arise and address these early.

Help others get on the right track with their credit score and share this MustCompare guide with friends and family.