What Causes You to Have Bad Credit?

​If you’ve been refused car finance, a loan, credit card or even a mortgage, you may be wondering why. There are many reasons why you may be declined when applying for finance but the most common reason to be declined for finance is a bad credit score. Your credit score is really important, it’s an indicator to you and lenders of how good you are at managing your money and paying back debts. Here are the main causes of a bad credit score.

Missed or Late Payments

If you regularly miss payments or struggle to make them on time, this can seriously affect your credit score. Your credit score will be lowered each time you fail to make a repayment or miss a payment all together. This indicates to lenders that you are not good at managing your money or sticking to agreements, which would make them wary to accept you for any more credit.

​Before you apply for finance, make sure you have at least 3 months history of repayments without any missed or late payments.

Repaying Back the Minimum

If you’ve taken out something like a credit card or a store card which you pay back monthly, it’s really tempting to only pay back the minimum required.

However, this can harm your credit score. This indicates to lenders that you are struggling to pay off your debts. If you take out a credit card, make sure you can actually pay back the amount.

Bankruptcy

If you are declared bankrupt, you are legally saying that you cannot afford to pay off your debts. This has a massive impact on your credit score as you are admitting that you have trouble paying back debts.

​If you are declared bankrupt, the assets you own such as your house and car can be sold to relieve your debts. Bankruptcy can stay on your credit file for up to six years and will seriously affect your chances of being approved for finance in the future.

Multiple Credit Searches

If you make multiple searches for credit, this can harm your credit score. If you apply for something like car finance with bad credit and you get declined, and apply elsewhere, you could be harming your credit score with each application. When you make multiple applications for finance, it can look to lenders like you are desperate for credit and haven’t made an informed decision.

Defaulting On Your Loans or Debts

When you miss a payment on any of your debts or loans, it can eventually turn into a default. In the lenders eyes, you are not going to pay back the debt or loan.

Each lender has different terms and conditions on defaults and it can vary on how much you owe and how long you’ve missed payments for. A default on your file can last for six years and can make it really difficult to gain finance in the future.

​The best way to avoid a default is to make sure you pay all your debts or loans back in time.

County Court Judgements (CCJs)

If you haven’t heard of a CCJ already, it’s a type of court order that is usually given to you if you fail to pay back any money that you owe.

​When your account goes into default, lenders can ask for a County Court Judgement against you. Like a default and bankruptcy, a CCJ can stay on your file for up to six years. You can resolve a CCJ by paying off the amount of debt you owe within a month.

Lack of Credit

Basically, to obtain credit, you need to have credit, and everyone has to start somewhere! If you’ve never borrowed money before or even taken out a mobile phone contract, you can’t prove that you are good at managing your money so your credit score may not be the best.

​Building your credit takes time. You could consider taking out a credit building credit card which is available from many credit card companies. They usually have a low credit limit and making a few purchases then paying off the balance each month is a great way to build your credit score.

Inaccurate or Fraudulent Information

You should check your credit file every month to make sure everything is OK and even having the wrong address could harm your score.

​It’s also important to check your file for fraudulent activity. You will more than likely see a significant drop in your credit score if you are the victim of fraudulent activity including identity theft.