Why is my credit score low? 10 reasons

There are many reasons why you could have a low credit score. It could even be because of something relatively easy to fix, like an inconsistency in how your personal details have been recorded. Other reasons, like negative payment markers from late debt repayments, might continue to impact your score for much longer.

Either way, your credit score doesn’t come with a blow-by-blow account of how it was worked out – so it can be difficult to know what’s happening and what steps you could take to improve it.

Let’s shine a light on some of the reasons why your credit score might be looking a little worse for wear. We’re specifically going to cover:

The way your credit score is calculated, so you can understand the things that might be influencing it.

10 common reasons for a low credit score.

Some actions you can take to start building up a higher credit score over time.

We’ll start by looking at what your credit score is and where it comes from.

What is your credit score?

Your credit score is a number designed to help you understand your financial health. It can also give you an idea of how likely you are to be accepted for new financial products that need a credit check (like loans, mortgages, and contracts such as hire purchase or leasing a car).

Your credit score is calculated from the information in your credit report. If you’re a UK resident, you’re over 18, and you have (or have had) a credit agreement in some form, you should have a credit report with at least one of the three credit reference agencies (CRAs).

The main CRAs in the UK are Experian, Equifax, and TransUnion. Each of these agencies receives information from public records (like the Electoral Roll and court records) and lenders (like banks, finance companies, and buy-now-pay-later services like Klarna). They process the data and store it as your credit report.

Your credit score is one number representing all the credit report entries associated with you over the past six years. Just bear in mind that you might have a different credit score with each of the CRAs because the information they hold and the way they calculate credit scores can differ.

Why is your credit score important?

Lenders don’t see your credit score, but they will see your credit report. A low credit score suggests there are items in your credit report that would make a lender more hesitant to accept your application for new credit.

It might be that you haven’t always managed debt well in the past, or because there’s not enough information to show that you can handle debt well. Either way, the reports of potential customers with low credit scores seem like more of a risk to lenders. They might find it harder to be accepted for new credit and are less likely to get access to the best deals.

Now that we’ve seen what goes into your credit score, let’s look at why your credit score might be lower than you’d like.

Common reasons for a low credit score

Everything in your credit report, including the dates when the entries were made, has the potential to raise or lower your credit score.

We’ll start by looking at admin-related issues – which you might be able to fix easily – and move on to the most common reasons associated with the way you manage finances.

Note: There’s no such thing as a universal credit score ‘scorecard.’ Scores can vary depending on which agency’s information is used to calculate them, and so can the impact of each of the things on this list.

1. There’s a mistake on your credit report

When your credit score is low – especially if it’s lower than you expected or staying low despite your best efforts – it can be a good idea to check your credit report for mistakes.

Lenders can make administrative errors and misreport information to the credit reference agencies they work with. For example, your credit card company might have reported that you missed a payment when your bank statement shows the money left your account in time.

Credit report inaccuracies can be as simple as typos, but they can have a significant effect. As an extreme example, if you have a similar name and address to a family member who recently declared insolvency, their insolvency might appear on your record, which can drag your credit score down.

2. Your personal details are incorrect or out of date

As well as your payment history, your credit report draws on information from public records.

Unlike some other European countries, the UK doesn’t have a national database of residents. The closest is the Electoral Roll (also called the Electoral Register), which is a list of who’s eligible to vote, maintained by each local authority.

Lenders use the Electoral Roll as an ‘index’ of credit reports. If you’re not on the Electoral Roll, your address is out of date, or your name or address format on the Electoral Roll don’t match the details on your credit application, it’s much harder for lenders to cross-reference the information you give them and confirm you are who you say you are. This can count against you in your credit applications.

And when it comes to your credit score, outdated personal details can also mean your credit record may be missing important information about your positive payment history. For example, you might be using your credit card and paying off the amount in full every month. But if it’s not being recorded on your credit report, you miss out on the boost it could give your credit score.

What to do if there’s a mistake on your credit report

If you find a mistake on your credit report or the Electoral Roll – even if it’s as small as a typo in your date of birth – it’s important to have it corrected.

Depending on the issue, you can contact your lender or the CRA with proof that the information is incorrect. Both lenders and CRAs have a legal obligation to make sure the information they’re reporting is accurate, and they will have a system for checking and updating their records.

The best place to check the details of your credit report is Checkmyfile. We include information from Experian, Equifax, and TransUnion for the most detailed credit report you can get. You can also contact our customer care team for advice on how to correct mistakes.

3. Your credit report hasn’t been updated yet

Lenders generally report new information about repayments to the CRAs they work with on a monthly basis. The CRA then needs to process the information before they add it to your credit record.

The timeframe can vary depending on the change you’re expecting, but updates to your credit report (and therefore your score) can easily lag behind the information you provide. For example:

• Regular monthly repayments usually take at least two weeks, and sometimes as long as eight, to be recorded, depending on where you are in the reporting cycle.

• Error corrections can take 6–8 weeks to appear on your credit report because the CRA needs to communicate with your lender.

• Electoral Roll information, like changing your address or registering to vote for the first time, can take up to three months to appear.

Essentially, if your credit score is still low even after you’ve done something that should have improved it, you might simply have to wait a few more weeks for your credit report to catch up.

4. You don’t have much credit history

You might have an error-free credit report and no debts, but you still have a low credit score. In this case, it’s probably because of the length of your credit history. If you haven’t used credit before, or if you only use one form of credit, there might not be enough information to calculate your credit score.

For example, if you don’t have a credit card, you bought your mobile phone outright, rather than on a contract, and you rent your home, you’re not using credit or making the regular payments that build up your credit history. This is also why it can be harder to get credit if you’re under 21 – younger people tend to have not used much credit yet, so they can’t show how they’ve managed debt in the past.

Lack of credit history can also be an issue if you move to the UK from abroad.

Different countries use different credit reference agencies and systems, so you can’t take your credit history data (or even the length of your credit history) with you. For example, if you come back to the UK after living in Germany for 10 years, you’ll have to start building your UK credit report again, and you might struggle to get a mortgage or a large car loan immediately after you arrive.

5. You have new credit accounts

If a new debt appears on your credit report, it can sometimes have a negative effect on your credit rating. There are a few main reasons for this:

• There’s a new ‘hard credit check’ on your report. Formal applications for new credit appear on your report and can lower your overall score. We’ll explain this in more detail in the next section.

• More forms of credit can increase the risk of spending beyond your means, which can be seen as an additional risk from a lender’s point of view.

• There’s a higher risk of missing a repayment. For example, if you have multiple credit cards, it’s harder to keep track of how much you need to repay and when. If you make a payment late, it will appear on your credit report and damage your credit score.

Having said this, your credit score won’t automatically drop as a direct result of having a loan or using a credit card. What’s more, paying back the debts you already have consistently over time builds a positive credit history that translates into a good credit score.

6. You’ve applied for new credit

Even if you don’t ultimately take on new debts, applying for credit can impact your credit score.

When you make a formal application for a new line of credit like a loan, mortgage, or credit card, the lender does a hard credit check (also called a hard credit search) on all the information in your credit report, including public records. The hard credit check will appear in your report, and the CRA will take it into account the next time they calculate your credit score.

Your credit report won’t show whether your application was accepted or rejected. Because of this, any hard credit check can impact your score and make lenders more cautious about providing new credit.

If your application is approved, you would have access to a new credit limit, but lenders won’t be able to see its value right away because the reporting takes time. This can concern lenders because it means they don’t have all the relevant information they need to assess your application.

Lenders can also see a credit report with lots of hard checks as a sign that someone is urgently in need of credit, they’re trying to borrow a lot of money in a short period of time, or they’re being repeatedly rejected. Again, this makes the potential customer seem like much more of a risk.

Note: We recommend limiting the number of new credit applications you make to around 10-12 per year, or once a month, to minimise the effect of repeated hard checks on your credit score. It’s important to only apply for credit you need and can afford.

Remember, speculative applications only require a ‘soft credit check’ and checking your credit report won’t affect your credit score at all.

7. You used all, or almost all, of your credit limit

Although you’re entitled to use the entire limit of your credit agreements every month, doing this month after month could harm your credit score.

For example, suppose your new credit card has a £2,000 limit and you use £1,800 every month. Lenders can see this as an over reliance on credit, which can be a sign of precarious personal finances.

The amount of available credit you use is called your ‘credit utilisation rate’ or sometimes your ‘credit utilisation ratio’ (CUR). The scenario above shows a customer with a 90% CUR (they’ve used 90% of their available credit, because 1800/2000 is 90%).

It can be beneficial to keep your CUR around 30-40%, as this shows responsible borrowing. For example, if you had the same credit card with a £2,000 monthly credit limit, putting £700 on it each month would give you a CUR of 35%.

8. You used too little of your credit

We’ve spoken about using too much of your available credit, but using too little can also keep your credit score low.

For example, if you had a large number of credit cards in your wallet, but you’ve since stopped using them, those accounts are considered dormant. Generally, this won’t harm your credit score, but it can be a fraud risk to have unmonitored credit accounts. After a certain amount of time has passed, your lender may also choose to close your dormant account.

When a credit account is closed, it can lower your credit score for two main reasons:

• It reduces the number of forms of credit you have, which means there will be fewer active payment markers on your credit report.

• It increases the CUR on your other forms of credit. If you spend £1,200 on one card instead of spreading it over two, for example, it will double the CUR on that account, which can have a knock-on effect on your credit score.

Ultimately, it’s a balancing act. People with higher credit scores tend to have credit records that show they actively use, and can manage, their credit over a range of accounts, but they don’t rely on it.

9. You took a payment holiday

Arranging a payment holiday is a way of postponing a repayment on money you borrowed (like your mortgage) without having it marked on your credit report as a missed payment. If you need time to get on top of your finances – for example, if you lose your job or have to take time off for illness, bereavement, or caring responsibilities – payment holidays can mean you don’t feel like you’re being chased for debts during this time.

However, payment holidays still show that a customer was temporarily unable to afford their repayments. Depending on your lender, they can appear on your credit report as a negative marker, so they can lower your credit score.

Your lender will be able to tell you more about how they record payment holidays on their customers’ credit reports.

Note: The UK government legislated that mortgage payment holidays linked to Covid-19 between 20 March 2020 and 31 July 2021 should not appear on credit reports, so they won’t affect your credit score.

10. You have a negative payment marker on your credit report

CRAs have several different markers to add to a credit file if a lender reports that the customer didn’t keep up with the repayments in the credit agreement they signed. These negative payment markers can all have an impact on your credit score, and some are particularly serious.

Late payment markers

When someone starts missing their repayments, they go into arrears. This is recorded as being a certain number of months in arrears.

Late payment markers show as numbers that indicate how many months behind someone was on a certain repayment. They generally go from 1–6.

Defaults

You can get a default on your credit report once you’re several consecutive months in arrears (often three to six months, but each lender will have different processes and cutoffs). A lender can mark a debt as defaulted if they consider the relationship with their customer to have broken down.

If you receive a ‘notice of default’ telling you the lender intends to report the debt as defaulted, you have 14 days to either settle the debt in full or agree to a repayment schedule with the lender. If you can do this, you can avoid having the default marker on your credit report (although the late payments that led up to it will still appear). It’s important to know that the lender doesn’t have to agree to a repayment plan.

If you don’t resolve the debt within this 14-day period, the default will be recorded on your credit report. If you pay it off after this, it will still appear on your credit report for six years, but it will be marked as ‘Satisfied.’ The default will continue to lower your credit score after it’s been satisfied, but a satisfied default can improve your chances of getting credit again compared to an unsatisfied default, as it shows that ultimately, you did pay your debt.

County Court Judgments

County Court Judgments (or CCJs) are serious negative markers. They show that a lender or creditor took their customer to court to reclaim the money they were owed, and the court ruled in the lender’s favour.

Although there are specialist lenders who work with people with CCJs on their credit reports, CCJs can severely lower your credit score and make it much harder to find an affordable deal for a personal loan, mortgage, or credit card.

As with defaults, a CCJ will be marked ‘Satisfied’ when you pay it off in full, but it will still lower your credit score for the entire six-year period it appears on your credit report. CCJs also appear on the public record, which means they can be seen by lenders, landlords, and potential employers when doing a background check.

Personal insolvency

There are several forms of personal insolvency under UK law, including:

• Bankruptcy.

• Individual Voluntary Agreements (IVA).

• Trust Deeds, or Sequestration in Scotland.

Once someone is insolvent, their financial affairs are managed by a trustee or by the Official Receiver, who looks at their assets and works out how much can be repaid to creditors and how.

Insolvencies will be recorded on the Bankruptcy & Insolvency Register (which can be searched by members of the public) and on your credit report. These are some of the most serious negative entries that can show on a credit report.

How long will a negative marker appear on your credit report?

With the exception of mistakes, which can be corrected, the factors listed above can continue to affect your credit score for six years.

After six years, both positive and negative payment markers are removed from your credit report, so they can no longer affect your credit score.

How can I improve my credit score?

Your credit score might be low because you’ve picked up a negative marker, or it might be that you haven’t been using credit for long enough to build a higher score. Either way, positive payment history is key to improving your credit score.

The best way to get things moving in the right direction is by using credit responsibly and consistently making repayments. This means:

• Paying bills on time. It almost goes without saying, but possibly the most important factor in your credit rating is when you pay your bills. There are ways to make sure you don’t forget about payment due dates like noting them on your calendar. Setting up direct debits means that the money is taken from your current account automatically.

• Staying credit active. Having a consistent credit history shows lenders you can manage your borrowing responsibly.

• Minimising hard credit checks. Remember that hard searches (showing you applied for credit) leave a footprint on your credit report. Too many searches in a short period of time can suggest that you’re in financial difficulty, which can make lenders less likely to take you on as a customer.

You can also go through this checklist to look for changes or updates you could make to your accounts today:

• Register to vote or update your address on the Electoral Roll. If you’ve never registered to vote before, you can do it online in around five minutes. You’ll be asked for your address and your National Insurance number, but you can still register if you don’t have one.

Remember to update your registration whenever you move or if you change your name (for example, if you get married, divorced, or change your name by deed-poll). This will make it much easier for lenders to cross-check your application and see your complete financial history when you contact them.

• Update your home address and personal details with your lenders. As with the Electoral Roll office, you should update your contact details with your bank and other financial institutions whenever something changes. Make sure you contact every lender you have an account with, so your name, title, address, and date of birth are the same across the board. This will mean all the relevant information is included on your credit report accurately.

• Monitor your financial associations. Financial associations include joint bank accounts and joint credit or debit cards. You can also be financially associated with someone if you act as their guarantor, like if you help your child buy a house by being a guarantor for their mortgage, though this depends on whether your lender reports it.

If you no longer need these associations (for example, you had a joint account with a flatmate for bills, but you’ve since moved out), it’s best to end the association. The other person’s credit report won’t directly affect your credit score, but if they have a poor credit rating, it can count against you when lenders assess your applications for credit.

Remember, it can take as long as three months for some of these changes to be included on your credit report, so it’s unlikely that you’ll see your credit score pick up immediately. However, by tidying up your credit report and keeping your repayments on track, you can build up a positive credit history that can start to raise your score.

In summary:

Building a credit record that gives you a good credit score is a fine balance. Using too much of your credit or missing repayments will have a negative impact, but your credit score will also be low if you don’t have enough credit history for lenders to draw their conclusions from.

If you want to check for potential errors, see what might be bringing your credit score down, or simply get a complete overview of your credit report, Checkmyfile is a great place to start. We show you the UK’s most detailed online credit report, using details from Experian, Equifax, and TransUnion to calculate your credit score.