Your credit report explained Why do I have a bad credit rating?

Confused woman with paper

Nobody has a single credit 'score' or 'rating' that all lenders will use when deciding whether to accept them as a customer.

However, having a blemished credit history is likely to mean you are turned down when you apply to borrow money – giving rise to some people's concerns that they have a bad credit rating, or are on a credit 'blacklist'.

'Bad behaviour' will hit your credit rating

If you fail to stick to the terms of your original credit agreement, information about this will appear on your credit report. For example, making credit card or loan repayments late, or missing them altogether, will impede your ability to borrow in future.

Likewise, being declared bankrupt, entering into an Individual Voluntary Arrangement (IVA) or having a County Court Judgement (CCJ) made against you will badly affect your credit rating.

Even making just the minimum repayment on your credit card each month can have an adverse effect on your credit report, as it may lead lenders to assume you are struggling to clear your debts.

If you are in financial difficulty and your debts are no longer manageable, it's important to contact your lenders as soon as possible to inform them and ask for help. It's better for you to be up front with the facts than to repeatedly miss loan or credit card repayments with no explanation.

For further information on how to handle problem debts, see the Which? Dealing with debt advice guide. You can get tips on improving your credit rating on the next page.

'Good behaviour' doesn’t guarantee a good credit rating

Some people assume that because they have never borrowed money in the past, they must have a good credit rating. In fact, this is unlikely to be true.

If you have never borrowed, your credit history is probably very short or non-existent. This will make it difficult for a lender to assess whether or not you are likely to repay what you borrow from them. Consequently, you may find you are turned down for market-leading credit cards and loans – even if you could comfortably afford to pay them back.

Similarly, customers who borrow small sums or always repay their credit cards in full each month could find it harder to get new credit than those with larger, long-term debts. This is because companies like lending to customers who will make them money – and borrowers who rarely pay interest on their borrowings are unlikely to be profitable.

Which? Money Compare: Credit builder credit cards - see some of the cards available that will help you to rebuild your credit history with Which? Money Compare.

What should I do if I'm refused credit?

If you're refused credit, you don't have a legal right to be told why. However, most lenders have signed up to the industry's Guide to Credit Scoring, which means they've committed to give a broad reason – so it is always worth asking.

If you feel you've been turned down for credit unfairly, you can appeal and supply further information to support your application. If the decision not to lend to you was made by an automated system, you can ask for this to be reviewed.

Should you still find yourself unable to get the credit you originally applied for, it’s important not to apply for another credit card or loan immediately. This could cause you further problems. Instead, you should check your credit file and take steps to improve your credit rating before trying to borrow from another lender.

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Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.