What are the causes of a bad credit score?

Common causes of a bad credit score include failing to stick to your credit agreement, paying the bare minimum on your credit card each month, and falling victim to identity theft. Learn how to steer clear of these financial pitfalls and keep your credit score in tip-top shape with our list of the seven biggest drains on your credit score.

Man in his home office, researching credit scores

The 7 most common causes of a bad credit score

Have you been turned down for a loan, a credit card or a mortgage because of a bad credit score? Perhaps you simply want to take steps to make sure your credit score never gets in the way of your plans for the future. If you avoid these money-management pitfalls you shouldn’t go far wrong.

1. Failing to stick to the credit agreement

If you make a late payment, miss a payment or pay less than is required by your credit agreement, it all gets added to your credit history. Over time, this could lead to your credit score being classified as ‘very poor’ or ‘poor’ by the credit reference agencies that determine how easily you can borrow money.

For advice on staying in control of your finances, check out how to manage your credit repayments.

2. Declaring bankruptcy

It will probably come as no surprise that declaring bankruptcy will significantly affect your credit score. The same is true if you use an Individual Voluntary Arrangement (IVA), which is a repayment agreement, made between a borrower and a lender when they are unable to pay their debts. If you’ve experienced bankruptcy, you can read our advice on improving your credit score.

3. Choosing the wrong credit card

It’s important that you choose a credit card that has a credit limit, interest rates and fees that will help you stay on top of your repayments and well within your balance limit. These are both factors that credit reference agencies use to decide your credit score.

Our comparison tool can help you choose a card that may work for your situation.

4. Being the subject of a County Court Judgement (CCJ)

As long as you repay money you owe on time, you should never have to worry about County Court Judgements. If you are issued one, pay the full amount within one month and get a certificate from the court to say you’ve paid off the debt, otherwise the CCJ could affect your credit score for six years.

If you’re worried there’s been a mix-up and a CCJ has been added to your credit history in error, you can request to see a copy of your statutory credit report for free by visiting the Experian, Equifax or TransUnion sites.

For more on keeping track of your credit history, read our article How to check your credit score.

5. Only paying the minimum each month

It might be tempting to only repay the minimum amount on your credit card each month, but paying more than the minimum can mean you’ll spend less on interest and potentially improve your credit score. Try our Repayment Calculator to see just how much you could save in time and interest by paying just a little more each month.

6. Identity theft

Imagine doing everything to keep your credit score in great condition, only for someone to compromise your credit cards, run up huge bills and damage your rating.

To protect your credit score from fraud, set up an email or text alert that is triggered every time a transaction takes place.

Even with secure online banking, identity theft and financial fraud can still happen. One way to protect your hard-earned credit score is to closely monitor accounts so you can quickly cancel your credit cards in response to unauthorised transactions.

To spot problems early you could set up an email or text alert with your bank that’s triggered every time a transaction takes place. Here’s more advice on protecting yourself from fraud.

7. Having no credit history

Your credit score will also be affected if you’ve never taken out a credit card or any kind of loan. In these instances, the credit reference agencies have no information to go on when deciding whether you will pay off any money you borrow in a reliable and timely manner.

One way to repair a bad credit rating over time, is to get a credit card and stick closely to the repayment conditions while you build up your credit score.

Check out our article ‘Should I get a credit card?’ if you’d like some tips on whether it’s the right move for you. You could also add to your credit history by making rental payments on time through the Rental Exchange scheme, as well as paying household and mobile phone bills on time.

What's next?

If you think any of the issues above might be affecting your credit score, our tips and hints for improving your credit score could help.

How to improve your credit score