What Is Considered a Bad Credit History?
24 May 2022
Articles
Bad credit history can limit your choices when you need a loan. In Australia, most people are unaware of their current credit score or that it is low until they are refused a loan. When you’re thinking of applying for a loan, check your credit report through Equifax.
If your credit rating is low, it may be best to improve it before applying for loans, especially if it is a home loan mortgage. Anytime you apply for a loan, the lender may access your credit history, which will be marked on your report. If you make too many loan applications in short succession, it may have a negative effect and reduce your overall credit rating, so it’s best not to shop around for loans too much.
What is credit history and why is it important?
A credit history report is a record of all your dealings regarding having credit. In this report, you’ll find information about your current credit accounts, including how much you have borrowed and when you’ve made repayments. If you’ve been consistently late with repayments, this will be reported, negatively affecting your credit score.
Maintaining a good credit history is essential as it’ll help you obtain a loan more easily when you need one. With most credit cards and loans, a financial institution will access your credit report to determine if you are a low-risk applicant. When you have a high credit score, lenders may offer you lower interest rates and a reduction in fees to secure you as a client. However, if you have a bad credit history, it’s not too late – you can still make changes to your financial situation to fix your credit rating.
What is considered a bad credit history?
Bad credit history is any credit rating that stops you from getting a loan. At Equifax, we can provide you with a credit report that shows your current credit history and provides a rating based on the data found in the document. In this report, you’ll be given a credit ranking from 0 to 1,200, and this is broken down into five categories:
● Below Average (≈0–459)
● Average (≈460–660)
● Good (≈661–734)
● Very Good (≈735–852)
● Excellent (≈853–1,200)
The higher your credit score, the more attractive your application becomes to a lender. All banks and other lenders will have guidelines for an applicant’s approval on any loan. While a bad credit rating may not stop you from getting a loan, it does limit your choices for who will lend you money. These lenders often provide loans that include a higher-than-average interest rate or fees attached to late payments.
If you’d prefer to have as many options as possible, you should take the steps required to improve your score.
How to fix your bad credit history?
All additions to your credit report will stay there for at least two years, with some serious items (e.g., defaults, judgements, bankruptcies, etc.) remaining there for at least five years. However, it is never too late to start changing your financial habits and improve your credit score.
The first step to fixing a bad credit history is to get a copy of your credit report. In Australia, everyone is entitled to get their report once every three months or within 90 days after being denied a loan. Have a read of the report and look for anything incorrect. If you find any errors in your report, you can contact the credit reporting agency, and they’ll follow it up for you. Most errors on a credit report are caused by the lender making a mistake, and these can be cleared off when requested. If you are shown to have a loan that you didn’t take out, you may have had your identity stolen.
Identity theft is a concerning issue in Australia because it has become quite common. ID theft will likely affect your credit score, and you’ll need to clear it up before you begin any credit repair strategies. If you suspect your identity has been stolen, you need to report to the police so they can assist with what you need to do next.
If you’ve examined your credit report and have cleared out any inaccuracies, then you can start working to improve your credit score. If you have any existing loans, ensure these are all up to date with the repayments. All credit cards should be under their existing limits, and you can cancel any that you do not need. You can lower the limit for any remaining credit cards as much as possible. Any bills that are in your name need to be paid on time. While bill payments do not contribute to your credit score (unless reported to a collections agency), paying them on time will help you build good financial habits.
Recovering from a bad credit history can take time, and it is best to keep a close watch on its progress. At Equifax, you can join our subscription service, and we’ll alert you of any changes to your credit report. We’ll also provide you with insurance cover if identity thieves target your details. Many factors go into producing your credit report, but you could see your credit score moving in the right direction if you heed good financial advice.
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Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
