A poor credit score can feel like a financial ball and chain, limiting opportunities and increasing costs in ways you might not expect. From higher insurance premiums to employment challenges, a bad credit score impacts multiple aspects of life.
It’s recorded that 1 in 5 people in the UK have a poor credit score, but if you count yourself among them, there is some good news. A bad credit score isn’t permanent. You can counteract the negative consequences and rebuild it with the right financial strategies and tips, which you can find below.
Limited Borrowing Options
Improving your credit score starts with understanding what affects it. Multiple factors contribute to bad credit, such as little to no credit history, missed payments, financial troubles or frequently moving house. Each of these elements signals to lenders that you may be a risky borrower.
As a result, you might face limited borrowing options, higher interest rates or outright rejection when applying for loans or credit cards.
Higher Insurance Costs
Higher insurance premiums have a lesser-known impact. Insurers often use credit-based scores to set rates, as they believe there’s a correlation between financial behaviour and the likelihood of filing claims.
Falling behind on bills or maxing out credit cards can increase your insurance costs significantly and could prevent you from being offered competitive rates. Worse yet, in some cases, you may not be able to secure an insurance policy at all. To avoid this, make paying your bills on time a priority.
Limited Selection of Credit Cards
Bad credit can severely restrict the types of credit cards available to you. With a low score, you’re likely to qualify only for secured cards or credit cards designed for rebuilding credit.
While these cards can help improve your credit score over time, carrying balances could result in expensive debt. Carefully manage your credit use and aim to pay off your balance in full each month.
Try to pay off your priority debts first and those that have the highest interest rates. If you find yourself struggling, make the minimum payments on all debts and speak to your lender about whether they can make things easier on you.
Problems Renting a Property
Finally, a poor credit score can complicate your living arrangements. Landlords want prospective tenants to be reliable with payments and will perform checks to confirm this. A bad score might mean facing rejection, providing a higher security deposit or needing a guarantor.
