What Are The Causes Of A Bad Credit Rating

Updated: January 08, 2024 Author:

Quick answer: A bad credit rating will be caused by negative information on your credit history. Negative information includes missing/late payments, failing to pay a CCJ, or declaring bankruptcy. A bad credit rating will limit your financial options.

    What is a bad credit rating?

    A bad credit rating or score occurs when a credit reference agency (CRA) negatively assesses your credit history. The UK has three main CRAs: Equifax, Experian, and TransUnion. Each CRA calculates a credit rating differently and uses different ranges, so your credit rating will be different between Equifax and TransUnion or Experian and Equifax. However, a bad credit rating will fall within the Poor or Very Poor bands:

    0 – 438Very Poor0 – 560Very Poor0 – 550Very Poor
    439 – 530Poor561 – 720Poor551 – 565Poor
    531 – 670Good721 – 880Fair566 – 603Fair
    671 – 810Very Good881 – 960Good604 – 627Good
    811 – 1000Excellent961 – 999Excellent628 – 710Excellent

    You can read more about how your credit rating is determined here.

    Common causes of a bad credit rating

    Below are some of the common causes of a bad credit rating.

    Breaching your credit agreementUsing the wrong credit card
    Becoming bankruptCounty Court Judgement (CCJ)
    Only making minimum paymentsHaving no credit history
    Identity theftOld credit accounts

    Breaching your credit agreement

    Your credit history will show if you have made a late payment, missed a payment or paid less than the minimum payment to your credit card account. This financial behaviour will lower your credit rating and could lead to a “Poor” or “Very Poor” credit rating.

    Using the wrong credit card

    Ensure you use a credit card with a sufficient credit limit and affordable interest rate. If you consistently use more than 25% of your available credit limit, it may negatively impact your credit rating. If the interest rate is very high and you miss a payment, the fees will be very high.

    Becoming bankrupt

    Declaring bankruptcy will have a significant negative impact on your credit rating. Similarly, your credit rating will fall if you cannot repay your debts and enter into an Individual Voluntary Arrangement (IVA). You can read more in How Bankruptcies and CCJs Affect Your Credit Score.

    Count Court Judgement (CCJ)

    If you repay the full amount you owe within one month, a CCJ should not affect your credit rating. If you fail to repay the debt, a CCJ will negatively impact your credit history for up to six years.

    Only making minimum payments

    Repaying the minimum amount on your credit card will mean that your debt takes longer to clear, and you will pay interest charges. Your credit rating will improve by paying more than the minimum and, ideally, the full balance.

    Having no credit history

    A potential lender can only assess your risk as a borrower with a credit history. You can read more about having no credit history in No Credit Vs Bad Credit and see tips on how to build your credit history.

    Identity theft

    Identity theft or fraud can significantly impact your credit rating. A fraudster could leave a debt of missed payment on your credit history.

    Old credit accounts

    Closing unused credit card accounts you are not using can be a simple way to improve your credit rating. It signals to lenders that you are on top of your accounts.

    How do I check if I have a bad credit rating

    You can use a credit monitoring app to keep track of your credit rating. Both free and paid apps are available to help you understand why you have a bad credit rating – see Best Apps To Monitor Credit Scores.

    How can I improve a bad credit rating?

    Improving a bad credit rating will improve your financial options, like accessing a more comprehensive range of loans, credit cards and mortgages at more competitive interest rates.

    Make payments on time and in full

    By making payments on time, you demonstrate that you are a responsible borrower. 

    Stay well below your credit limit

    Your credit limit is the maximum amount of money you can borrow on your credit card. It is often called your available credit. When you use your credit card, your available credit decreases. For example, if you have a £1000 credit limit and spend £300, your available credit will be £700. Your credit utilisation rate, ratio, or percentage is your credit card balance divided by your total credit limits. For the previous example, the credit utilisation is £300/£1000 = 30%. You can boost your credit rating by staying below a 25% credit utilisation.

    Read more about the impact of credit card debt on your credit rating here.

    Register to vote

    Being on the electoral roll links your identity and home address, which can boost your credit rating. Make sure to keep your home address up-to-date.

    Avoid too many credit applications

    Too many credit applications in a short time may make lenders think you are in financial difficulties. Try to limit your credit applications to one per 3-6 months.

    How long does it take to improve a bad credit rating?

    Going from a bad to a good credit rating takes time and varies depending on the reasons for your bad credit rating. Recovering from bankruptcy can take years, whereas improving your credit rating due to missed payments can be achieved within several months. You can read more about repairing your credit history here.


    A bad credit rating means there is negative information on your credit history. We have explored common causes of a bad credit rating, including missing payments, high credit utilisation, or bankruptcy. If you have a bad credit rating, do not be disheartened; start making a plan to improve your credit history. By improving your credit rating, you can access a broader range of financial products.