What banks consider to be "bad credit"

By UK CreditCards.com

Credit Action recently reported that over 8,000 people in England and Wales seek debt advice from the Citizen's Advice Bureau every day. With more people experiencing problems paying loans and credit cards, it is hardly surprising that the credit rating of many Brits is suffering.

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But what exactly constitutes ‘bad credit' when you are applying for a credit card? 

Credit scores vary from company to company
Every provider of credit cards has a different credit scoring system. They use information from a credit reference agency (about your previous payment history and other details) as well as personal information about you to make a lending decision.

Companies also change their credit scoring system regularly, depending on market conditions and their products. That said, there are basic guidelines that all issuers follow. For example, you have to have a significantly higher credit score to benefit from the best 0% APR credit cards than you do to qualify for credit cards with higher APRs. And if, according to issuers, you have bad credit, then you may find that you only qualify for bad credit credit cards.

What causes you to have ‘bad credit'?
There are a number of things that instantly qualify you as having 'bad credit' in the eyes of lenders. Typically, these include defaulted loans in your credit history, as well as mortgage arrears and County Court Judgments (CCJs). With 1,603 County Court Judgments issued every day during the last quarter of 2010, these are the most common causes of ‘bad credit' for UK consumers, say experts. 

However, you may also have to turn to bad credit credit cards for other reasons. For example, lenders take late payments into account when determining whether they will lend. If you have a history of making your payments late, then this will impact your ability to secure a credit card with a competitive APR. It could also drag your credit score down to the point where you only qualify for bad credit credit cards.

In addition to missed and late payments, incorrect or missing information can also result in a reduced credit score. If you're not on the electoral roll at your current address, then this can impact your score. Also, incorrect or out of date information can adversely affect your ability to be approved for credit cards. Experts advise that you check your credit file on a regular basis to ensure that all the information is correct. Otherwise, you could be offered a card with a higher APR than you deserve. 

See related: Study: Many Brits lack key knowledge of credit scores; Applying for a new credit card? Check your credit score first

Published: 25 April 2011