Are you worried about your credit history? If you've been rejected for loans, missed your monthly payments or had other financial troubles in the past, these could continue to affect you for years down the line.
Understanding how your credit score works and what lenders are looking for is the first step to making positive changes.
What is bad credit?
Every time you take out or pay back debt, information is reported on your credit report. Credit agencies such as Equifax, Experian and illion calculate your positive and negative credit history as a single number – your credit score.
Different agencies use different figures, but a bad or below average credit score is typically below 500 (509 for Equifax, 549 for Experian). A good credit score is over 620, an excellent rating over 800.
Since 2018, Australia uses comprehensive credit reporting which means both positive and negative information is visible to potential lenders. Positive credit information includes meeting your repayments on time and showing that you're a reliable borrower. Negative information could include:
- late or missed repayments
- defaulting on a loan or credit card (payments more than 60 days overdue)
- bankruptcy
- court judgements
- making multiple credit enquiries in a short time frame
Does bad credit really matter?
Any time you apply for a loan, credit card or other type of finance, your bank or lender is able to check your credit file to determine your suitability. If you have a poor credit score, this may indicate that you may have trouble keeping up with your repayments. They may also check your credit history in more detail to look for specific red flags.
If you have bad credit, this could mean you're unable to access credit or can only do so on less favourable terms – such as a lower borrowing amount, higher interest rate or fees.
What can I do if I have bad credit?
If you have poor credit but you need a loan urgently, some lenders offer non-conforming loans designed for people in your situation. However, these are likely to have higher interest rates.
If you want to improve your credit rating for the long term, the first step is to request a copy of your credit report. You can access your credit report for free once a year or in other circumstances, which gives you the chance to see exactly what your bank and lenders will see. If you spot any mistakes, you should contact the credit reporting agency as they may be able to fix this and improve your overall score.
You can avoid further blemishes on your credit history by making sure you always pay your loans, credit cards, utility bills and other payments on time and not making too many credit applications at once. If you're struggling to pay off a number of debts, you could benefit from a consolidation loan rolling these into one more affordable monthly payment.
You should also speak to an expert for advice. For a confidential discussion about your options with no obligation, call the Debt Fix team today on 1300 332 834.