What is a bad credit score?

Applying for credit, such as a loan, overdraft or mobile phone contract, is like applying for a job.  

Just as an employer wants to know about your work experience, a lender wants to see your experience with credit – and uses your credit report to check. This records your credit history over the last six years or so and shows whether: 

• you’ve borrowed money before 
  
• how much you currently owe 
  
• if you’ve kept up with repayments. 
  

Essentially it lets lenders hear from companies that have already lent you money. They can then work out how safe a bet you are – just like a job reference.  

You wouldn’t want to apply for a job without updating your CV first, or double checking it for typos. The same applies when applying for credit, you want to leave as little to chance as possible. 

There are three companies (credit reference agencies) that hold your credit file, so it’s best to check them all. You can do this for free using the following sites:   

• MoneySavingExpert’s Credit ClubOpens in a new window for Experian 
  
• ClearscoreOpens in a new window for Equifax 
  
• Credit KarmaOpens in a new window for TransUnion
  

The actual score you see (the number between 0 and 999, depending on the agency) is just for your eyes only – lenders don’t use this. This is designed to give you an idea of how well you’re doing, the higher the number the better. 

It’s the information recorded on your credit file that really counts. For each agency, check all your details are correct and make sure you recognise all the accounts listed. 

If you spot a mistake, you’ll be able to raise a correction request to the credit reference agency. The sites above can help with this. 

Building up a good credit history takes time – often at least six months, or longer if you’ve made mistakes in the past such as missing a payment. The thing that really matters is repaying on time, so not missing a bill for example. 

However, there are some easy things you can do that banks and other companies all agree are attractive, including registering to vote at your current address and avoiding multiple credit applications. For a full list, see How to improve your credit score. 

While a higher credit score will often mean you qualify for more deals and cheaper rates, there’s usually other factors too.  

Imagine a stranger walks up to you and asks to borrow money. Would you hand over your cash?

What if a friend told you that person was reliable and they'd returned things they'd lent them before. Would you hand it over now? What if your friend had a bad experience and the person broke or never given the item back? 

Your decision will probably depend on how much they asked for, or how long they want it for. For example, if they wanted to borrow £1 for 10 minutes you might be willing, but if they asked for £20 or £100 for a week you might not fancy the risk. And your decision will probably be different to mine. 

This is true when applying for a product or service too. Each lender will have a different criteria for who they’ll lend to, so you could have a low credit score but still be accepted – or a perfect credit score and still be declined. 

It’s therefore all about finding out who will lend to you. Enter your details into an eligibility checker on a comparison site such as MoneySavingExpertOpens in a new window ClearscoreOpens in a new window or Credit Karma and you'll see which lenders are likely to accept you before applying.Opens in a new window