What Counts as Bad Credit in the UK?

Bad credit is not a formal status and there is no single score that makes somebody a bad credit customer. The term is normally used when information in a person’s credit history suggests that lending to them may involve more risk.

This could be due to missed payments, defaults, court judgments or insolvency. It can also happen when someone has very little borrowing history, uses a large amount of their available credit or has made several recent applications.

Having bad credit does not mean that every lender will refuse you. It usually means that your choice of products may be smaller, your interest rate may be higher or the lender may offer you less than you requested.

The score shown in a credit report app can be useful, but it is not a universal rating.

The UK has three main credit reference agencies: Experian, Equifax and TransUnion. Each agency holds its own version of your credit report and uses a different scoring system.

Experian currently scores people from 0 to 1,250. It describes a score from 0 to 640 as Low and 641 to 860 as Fair. Equifax uses a scale up to 1,000 and describes 0 to 438 as Poor.

These ranges can change. Services that use data from the same credit reference agency may also present the information differently. This is why a score of 600 could look reasonable on one scale and weak on another.

The number you see is best treated as a guide to the information in your report. It is not the score every lender will use. Experian itself explains that each lender scores applicants in its own way.

A lender can therefore decline someone with a high consumer score or accept someone whose app describes their score as poor.

Lenders do not all have the same rules, but certain types of information commonly make borrowing more difficult.

Missed and late payments

A late payment means you paid after the agreed date. A missed payment means the required payment was not made.

One isolated late payment may not be treated in the same way as several missed payments. The lender is likely to consider how recent the problem was, how often it happened and whether the account is now up to date.

Recent missed payments can be particularly important because they may suggest that your current budget is under pressure.

Defaults

A default is normally recorded when a lender believes that the credit agreement has seriously broken down. This often follows several missed payments, although the exact process depends on the account and provider.

A default is more serious than a single late payment. Paying the balance does not immediately remove the record, but it should be updated to show that the debt has been satisfied or settled.

An older satisfied default may be viewed differently from a recent unpaid default.

County Court Judgments

A County Court Judgment can be registered if someone takes court action against you over money owed and the court confirms the debt.

A judgment is a significant negative entry. Lenders may look at its age, value and whether it has been paid.

In Scotland, the nearest equivalent is usually a decree. Credit reports and lenders may still group these records under court judgments when explaining an application decision.

Bankruptcy and other insolvency arrangements

Bankruptcy, an Individual Voluntary Arrangement, a Debt Relief Order and certain Scottish debt solutions can make obtaining credit more difficult.

These records show that a person has needed formal help to deal with debts. Some lenders will not accept an application while an arrangement is active. Others may require a period of time to pass after it has ended.

High use of existing credit

You do not need to miss a payment to appear financially stretched.

If several cards are close to their limits or an overdraft is used heavily each month, a lender may question whether another repayment is affordable. This can be important even when every account has been paid on time.

The lender may compare what you currently owe with your available limits, income and other commitments.

Several recent applications

A full credit application can leave a hard search on your report. Making several applications in a short period may suggest that you urgently need credit or have been unable to obtain it elsewhere.

The outcome of an application is not normally recorded on your credit report. Other lenders may see the search, but they will not usually see whether you were accepted or declined.

Using an eligibility checker before making a full application can reduce unnecessary hard searches. An eligibility result is only an indication and does not guarantee approval.

Credit problems are not judged in isolation. Three details often matter more than the name of the entry.

Recency matters. A missed payment from last month will usually raise more concern than one recorded several years ago, particularly if every payment since then has been made on time.

Frequency matters. One mistake is different from a continuing pattern. Repeated late payments across several accounts suggest a greater risk than one late payment on a single account.

Current position matters. A lender may consider whether the account is now up to date, whether a default has been satisfied and whether your present income can support the proposed repayment.

This explains why two people with the same type of credit problem can receive different decisions.

A loan refusal does not prove that your credit history is bad. The lender might believe the requested amount is unaffordable, you might not meet its income rules or the product may be limited to a particular type of customer.

Having a low income does not automatically create a poor credit score either. Income is not the same as payment history. However, lenders normally consider income and expenses separately when deciding whether new borrowing is affordable.

Living with someone who has bad credit does not link your reports simply because you share an address. A financial link is usually created through a joint account, joint borrowing or another shared financial agreement. The Information Commissioner’s Office confirms that people should not be linked merely because they live at the same address.

Your postcode does not decide your personal credit score. Your address is used to confirm your identity and connect accounts to the correct report, but you do not inherit the credit problems of previous occupants.

Someone can struggle to obtain credit without having any negative records.

If you have never used a credit card, loan, overdraft or similar account, a lender has less evidence showing how you handle repayments. This is sometimes called a thin credit file.

It can affect young adults, people who have recently moved to the UK and people who have avoided borrowing for many years.

A thin credit file is not the same as bad money management, but the result can feel similar. You may have fewer products available because lenders have less information on which to base a decision.

Many account records remain on a credit report for about six years. This can include missed payments, defaults, court judgments and completed credit agreements.

The time is not always counted from the day a debt is eventually paid. For example, a default will normally be removed six years after its recorded default date, even if the debt is paid later.

The entry should still be updated when the balance is settled. An unpaid default and a satisfied default are not identical, even though both may remain visible for a period.

The ICO states that credit reference agencies hold information about credit accounts, utility accounts, addresses, electoral registration, court judgments and insolvency. It also explains that keeping a default beyond six years from the original default date is unlikely to be fair.

Time alone does not rebuild a credit history. What happens after the problem is also important. New payments made on time can show that your position has become more stable.

A lender does not simply open your report, read one score and make an automatic decision.

It may consider the information from a credit reference agency alongside:

• Your income and employment status
• Your normal household spending
• Your rent or mortgage
• Existing credit repayments
• The amount you want to borrow
• The proposed repayment period
• Information in your application
• Fraud and identity checks
• Bank account information, where you have agreed to provide it

Different lenders may place different weight on the same facts. One may refuse applicants with a recent default, while another may consider the application if the default is small, satisfied and supported by otherwise stable finances.

This does not make approval predictable. Every application remains subject to the lender’s criteria and affordability assessment.

Check the reports held by Experian, Equifax and TransUnion rather than relying on one app.

The agencies may hold slightly different information because not every provider reports to all three. The ICO confirms that you can request your credit information free of charge.

Read the entries rather than focusing only on the headline score. Look for incorrect addresses, unfamiliar accounts, duplicate debts, missing payments recorded by mistake and settled accounts that still show an outstanding balance.

If information is incorrect, raise a dispute with the credit reference agency and the organisation that supplied it. Explain what is wrong and provide evidence where possible.

Checking your own report does not lower your credit score.

Start with accuracy. Incorrect information should be corrected before you make another application.

Bring any accounts that are behind up to date where this is affordable. Continue making at least the required payment by the agreed date. If you cannot pay, contact the provider early rather than ignoring the account.

Try to reduce card and overdraft balances without using another expensive form of borrowing to move the debt. Avoid making several applications simply to see who accepts you.

Make sure your address information is consistent and register to vote at your current address if you are eligible. Close financial links that are no longer accurate by asking the credit reference agencies for a disassociation.

There is no genuine service that can erase accurate negative information immediately. Be cautious with companies promising to create a clean credit file or remove valid defaults.

If you are missing essential bills or borrowing to cover existing repayments, improving a score should not be the first priority. Speak to a free debt adviser through the MoneyHelper Debt Advice Locator.

Bad credit in the UK is best understood as information that makes a lender less confident that new borrowing will be repaid as agreed.

A low agency score can be a warning, but it is not a universal verdict. The age, frequency and seriousness of the entries matter. Your present income, expenses and existing debts matter too.

Look beyond the number. Your full report and current ability to afford credit provide a much clearer picture of where you stand.