How does bad credit affect you?

Bad credit suggests to lenders that you’re less likely to pay back the money that you borrow based on your previous financial behaviour. This means some may refuse you credit whilst others will lend to you but charge more interest. You can repair all credit mistakes over time by showcasing responsible borrowing behaviour (making your payments on time, every time).

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1. Higher interest rates

Lenders calculate their decision to lend money based on risk. When the risk increases, they will charge higher interest rates to counteract. This is to offset the potential cost of recouping the money later down the line.

2. Rejected applications

Bad credit will increase your chances of rejection. Not every lender is prepared to take the risk, so they will potentially refuse applicants on this basis.

What’s worse is that rejection also exacerbates your bad credit situation. Every hard check of your credit report is recorded and logged on your file for a year, which causes your score to take a temporary dint. Too many in a short space of time can give the perception that you are unstable with your finances and is a red flag to many lenders.

It’s always a good idea to use soft search facilities or eligibility checkers before submitting any applications. These let you know the likelihood of being accepted without affecting your credit score. We use QuickCheck to see if you’re eligible before you apply.

Using soft check facilities means you can restrict your applications to those where you have a high chance of acceptance.

What causes a poor score?

There are a few different factors that can cause a low score. These include:

  • Not being registered on the electoral roll - Registering proved your identity to lenders. You can register here, it only takes five minutes.
  • Recent credit applications - All hard searches on your credit file are logged. Find out who can see your credit report and what will be classed as hard searches.
  • Missed or late payments - Even a payment that’s a day late can be recorded on your credit report. Set up Direct Debits to make sure you pay on time, every time.
  • Zero or minimal credit history over the past six years - Lenders like to see evidence of you borrowing and paying back money. Absence of this will cause your score to dip.
  • Excessive credit utilisation - This refers to the percentage of your available credit that you’ve actually borrowed. If you use less than 30% your score should increase.
  • Making reduced payments - This is when your lender has agreed to lower your minimum contractual payments. This can be through communication with you or as a consequence of a debt management plan (DMP) or an Individual Voluntary Arrangement (IVA).
  • Financial associations - If you have open joint finances or joint credit accounts, such as a shared mortgage or joint bank account, the person who you share it with will have their credit history logged on your report. This doesn’t technically impact your score, but lenders may check their report when deciding to lend you money. If they have a poor credit history you may be refused as a consequence.
  • Defaults - This is when the account is closed due to a series of consecutive missed payments, usually 3-6 months.
  • CCJs - This is when the person or institution you owe money to applies to the County Court to get the money paid off. They can only do this after your account has defaulted.
  • Bankruptcy - This is when you can not settle your debts and no alternative solutions can be found. As it’s the most serious of all debt consequences it has the biggest impact on your score.
  • Mistakes - Mistakes happen. If your report logs any of the above or even an incorrect address, it can impact your score. 

How long does bad credit affect me?

There are a number of things that cause your score to drop - some are easy to fix and some take a little longer, as they’re fixed by showing responsible borrowing behaviour over time.

Discover 45 ways you can improve your score.

Hard checks on your file stay on your report for twelve months, with the exception of searches by debt collection agencies which may stay on for longer. If you have done something which fails to meet the original terms of your initial credit agreement, this will stay logged on your file for six years - common examples include a default or a CCJ.

Nothing is permanent and everything becomes less of an issue over time. This is because creditors are usually more concerned with your recent credit history.

Missed or late payments

Missed or late payments are some of the most common credit mistakes to make. If you contact your lender as soon as you realise you have missed a payment and can pay it in full, they may not log it on your credit report. They may also do the same if you contact them in advance of missing a payment and explain your reasons. They are not under obligation to do so, it's at their discretion.

Making reduced payments

If you are in financial difficulty and your lenders agree to accept reduced payments, this will be logged on your file. This is the case if you speak to your lenders directly, or do so via an agreed debt management plan (DMP) or an Individual Voluntary Arrangement (IVA). For this reason, it’s advisable that this course of action is as a last resort when you can’t bring your borrowing under control.

It’s worth noting though that DMPs, if secured in enough time, can avoid action which has a more damaging impact on your credit score, such as defaults and CCJs. IVAs tend to be the correct course of action when your debts are larger and may help you avoid bankruptcy and protect your assets.

If you are worried about your ability to pay your debts you can seek free and impartial advice from debt charities such as Stepchange or the Debt Advice Foundation. They will advise on the best course of action and can help with both DMPs and IVAs.


You can prevent defaults from appearing on your report if you reach an agreement with your lender when they send a default notice out. This is a letter from them warning that the account is about to be placed in default. This must be issued to give you warning before the default is officially logged.

Once the default is logged, the only way it can be removed is if it was added by mistake. This is one reason why it is good practice to check your credit report regularly, in the event that this has happened. You can contact both the lender and the credit reference agency in question to flag that it’s a mistake.

Once the default has been paid in full, it will be noted as satisfied. This won’t remove it but it will show prospective lenders that the debt is no longer an issue. This can have a positive impact on your chances of securing finance in the future.


If you pay the amount in full within a month of the judgement or get it cancelled when you receive the initial CCJ claim form letter, it will be removed from your credit report.

If you pay it off after the judgement has been entered, you can’t get it removed, but you can get it marked as satisfied. This will make you more appealing to some lenders, depending on their individual requirements. CCJs diminish in impact over the six-year period, and certain lenders will still offer finance to people with a CCJ logged on their file.


Bankruptcy is the most severe of financial mistakes. By law, you need to let the lender know that you’re bankrupt if you apply for credit in excess of £500 during the first year of your bankruptcy. This means you will most likely be refused or charged a high interest rate.

It will continue to impact your score beyond that point, with it being the biggest red flag for lenders for six years from the date of issue. There are also rare cases where the official receiver, who handles your debts during the bankruptcy process, sets a bankruptcy restriction undertaking/order (BRU/BRO). This though only comes about when they believe you have acted negligently or dishonestly.

How can I improve bad credit?

  • Pay your bills on time, every time - Meeting all your contractual agreements every month will avoid missed payments, which is how all the serious mistakes start. Set up direct debits or develop an effective reminder system so you never miss a payment again.
  • Borrow responsibly - The best way to offset the damage of poor borrowing is to demonstrate better behaviour. So only take out credit agreements you are confident of paying for the full duration of the terms.
  • Improve your credit utilisation - Try not to borrow everything you are offered. If you have a credit card limit of £1000, restrict purchases to less than £300 per month and always pay it off.

Check your credit report regularly - You can check your report for free with all three of the main credit reference agencies, Equifax, Experian and Transunion. Our partner CredAbility enables you to check your Equifax report and offers coaching to help you improve your score and achieve your financial goals.