A low credit score can hold you back in life, but the good news is it can be fixed. If you find yourself asking ‘why do I have bad credit?’ You’re not alone! Over 60% of our customers don’t even know their current credit score! You may not be aware of the most common factors that affect your credit score. Knowing why your credit score is low is key to improving a bad credit score. Read our latest blow below on why you could have a bad credit score.
What is bad credit?
A bad credit score makes it harder to borrow money and get the best deals on financial products. It occurs when your credit is in a negative position and your credit history has factors that may put future lenders off. Credit reference agencies set their own scoring system so it can be hard to pinpoint one number which refers to ‘bad’ credit.
However, the table below shows what the 3 main credit reference agencies consider a low credit score.
| TransUnion | Experian | Equifax | |
| Very Poor | 0-550 | 0-560 | 0-279 |
| Poor | 561-565 | 561-720 | 280-379 |
Why do I have bad credit?
There are many reasons why you might find yourself with a bad credit score. Many people know where they have gone wrong in the past, whether it be missed payments or no credit history, but you may be left wondering, ‘Why do I have bad credit?’ If this is you, see the most common reasons for a bad credit score below.
How do credit scores affect car finance?
Missed or late repayments.
One of the most influential factors on your credit score is your ability to stick to the terms of your credit agreements. If you make late repayments or miss payments altogether, it can have a detrimental effect on your credit file. You can fix a bad credit score by keeping on top of all your current repayments and ensuring they are made on time and in full.
No history of borrowing.
A common credit mistake that many people make is assuming no credit history means good credit. However, credit scores are all about future predictions, so no previous history of borrowing makes it hard for lenders to know if you can be trusted with credit or not. Having no previous credit history could leave you with a bad credit score. To start building a small and sensible credit history, you could consider something as simple as a mobile phone contact in your name and setting up a direct debit to collect the payment on time each month.
Find out more about car finance with no previous credit history.
Declaring bankruptcy.
Being declared bankrupt is when you write off your debts, and it can stay on your credit report for 6 years. It’s a legal process and shouldn’t be taken lightly. It is one of the worst credit situations you can be in and can hinder your chances of being able to borrow money again. It can be hard to get a loan whilst bankrupt, and you’ll notice our car finance eligibility requires you to be free from bankruptcy before applying. Once you’ve ben discharged from bankruptcy, you are free to apply for different loans but it can be good to stay clear of loans or credit for a while, if that was how you ended up getting into debt in the first place.
Identity fraud.
Identity fraud is when someone who is not you applies for credit or finance in your name. Your credit report shows the recent applications you’ve made for finance, so it’s important to regularly check your credit report and ensure all credit applications look right. If not, you could have been the victim of credit fraud in your name. Contact the credit reference agency that provided your credit report as soon as you spot something which does not look right and ask them to dispute it.
High levels of debt.
If you’re still wondering, ‘Why do I have bad credit?’ it may be because you have too much debt already. Your credit score uses something called the credit utilisation ratio, which analyses how much credit you have available and how much of it you’re currently using. If you’re maxing out all your accounts, it can have a negative impact on your credit score. As a general rule, you should only use around 50% of your available credit limit at once and work to pay it off as fast as possible.
County Court Judgements (CCJs).
A County Court Judgement is a court order which is imposed when you owe someone or a company some money and you are forced to pay it. If you can’t afford to make your payments and you miss the repayments, the company may issue a CCJ against the borrower. If you don’t pay the money within 30 days, further action can be taken and the CCJ will stay on your credit report for up to 6 years. Having a CCJ on your credit report can seriously affect your ability to borrow money.
Defaults on your credit file.
Defaults are similar to CCJs and are issued when a borrower stops making repayments, and the lender closes the account. Defaults are actually a type of CCJ, but the debt can only be defaulted once and then further action is taken. A default is a negative marker on your credit report, which, just like a CCJ, can last for six years. It impacts your ability to borrow money because it shows other lenders you’ve failed to meet your repayments. Find out more about car finance with a default.
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