Reasons for a Bad Credit Rating

A bad credit rating can make it harder to take out loans and credit cards. They may mean you cannot take out new sources of credit, or end up with high rates on credit cards and mortgages.

If you have found yourself turned down for credit or been offered higher than expected rates, this is a sign you may have a bad credit rating. There are several things that might cause it, and if any of them apply to you it may be worth taking action to improve your score.

Missed Payments

Missing loan repayments or being late to make them is a key factor in getting a bad credit rating. This doesn’t just apply to loans and credit cards either. Missed or late payments for utility bills can also feature on your credit rating. If you have failed to pay back credit according to the agreement, this will make lenders wary of trusting you with money in the future and hit your credit score.

Even if you are meeting repayments, this does not guarantee your credit score will be left untouched. For example, if you are only managing to make the minimum levels of repayment on a credit card, it might have an effect on your credit score. This is because it could lead lenders to suspect you may be having trouble paying debts back.

Lack of Credit History

Some people think that if they have rarely or never taken out any form of credit in the past, this will give them a good credit score because they have no problems against their name. In fact, this is often not true. If you have no credit history or a very short one, you are an unknown quantity in the eyes of lenders. They cannot judge how reliable you are at making repayments because they have no past information to go on.

Unfortunately, good behaviour doesn’t always mean a good credit rating even if you have taken out debts in the past. If you have a history of taking out small debts such as credit cards and then paying them off on time, this might mean lenders still feel some uncertainty about how you would handle bigger debts. Though it may seem unfair, this may also lead them to see you as an unprofitable customer, as you do not accrue interest on debts.

Bankruptcy and Court Judgements

Another important factor that can hit your credit rating is the kind of financial issue that leaves an official record. If you have ever been bankrupt, this will have a very definite impact on your credit score. The same applies if you have ever entered into an Individual Voluntary Agreement. If a County Court Judgement has been made against you stating that you owe money, once again this will leave a black mark on your credit rating.