Having a bad credit rating can be a real pain; it can make it difficult to get a loan, rent an apartment, or even get a job. So, how long does bad credit last in Australia? Keep on reading to find out this and other useful information, such as what bad credit is, how to fix it, and how to maintain a good credit score.
How long does a bad credit rating last?
The amount of time a bad credit rating stays on your credit file mostly depends on the severity of the issues that led to it being marked as bad. If you have missed payments or had a debt default, then your rating will be bad for up to seven years.
However, if you have simply had a low credit score for some time, this will only impact your rating for up to two years. A low credit score is not considered as severe as missing payments or having a debt default.
What is a credit score and why do the lenders use it?
A credit score is a numerical expression that lenders use to evaluate an individual’s creditworthiness. It is based on factors such as payment history, outstanding debts, and credit utilisation. A good credit score indicates that an individual is a low-risk borrower, while a bad one indicates a high risk.
Lenders use credit scores to determine whether or not to approve a loan, and at what interest rate. For individuals with bad credit, it can be difficult to get approved for a loan at all, since lenders will see them as high-risk borrowers who are more likely to default on their loans.
Reasons leading to a bad credit score in Australia
Let’s see what are the most common reasons for having a bad credit score in Australia:
- Missed or late payments
People’s credit ratings can usually go down if they miss or are late with their payments. This can include missing payments on credit cards, loans, or other bills. If you’re consistently missing payments, your credit rating will go down, and it will be harder to get approved for loans or other types of credit.
- Failure to pay
People can also get a bad credit rating if they have failed to pay back the money they’ve borrowed, whether it’s a loan from a bank or friends or family members. If you can’t pay back what you’ve borrowed, your credit rating will go down.
- Not fixing errors on the credit report
If you have an error on your credit report, it can negatively impact your credit rating. This might be as simple as a spelling mistake, or it may be a data entry error regarding the amount of your debt. It’s critical to correct any mistakes on your credit report as soon as possible.
- Receiving court judgements over unpaid debts
In some cases, people can find themselves with a bad credit score after receiving a court judgement for an unpaid debt. This may happen when the debtor is unable to pay the debt back, or because they refuse to do so.
If you’re faced with a court judgement, it’s important to take action as soon as possible to try and improve your credit rating. You can work out a payment plan with the creditor, try to get the judgement overturned, or speak to a lawyer about your options for improving your situation.
- Declared bankruptcy
Declaring bankruptcy is another common reason for people’s credit scores going down. When you declare bankruptcy, it means that you’re unable to pay back your debts and have asked the court to take control of your finances.
This will show up on your credit report and will severely impact your credit rating, so make sure you speak to a lawyer and get all the information you need before you decide to declare bankruptcy.
- Too many credit enquiries in a short period of time
Many lenders may see frequently applying for loans as a sign you’re struggling financially and may be unable to repay your debts. If you’re frequently applying for credit, your credit rating will go down, and it will be harder to get approved for loans or other types of credit.
Depending on the frequency and type of credit enquiry lenders make when you apply for a loan (soft pull or hard pull), your credit score may or may not take a hit (soft pulls are usually standard, whereas hard pulls remain on your credit reports and can damage your credit score).
How to improve your bad credit rating?
There are a few things you can do to improve your bad credit rating:
- Lower your credit card limit – this will show lenders you are not overextending yourself and that you are capable of managing your finances.
- Limit how many applications you make for credit – you can avoid too many enquiries into your credit file by applying only if and when you truly need a loan; otherwise, your credit score will take a serious hit.
- Pay your rent or mortgage on time – this demonstrates to lenders that you are responsible with your money and can be counted on to repay your debts.
- Pay your utility bills on time – this proves you are a responsible and dependable person who can be trusted to repay debts.
- Pay your credit card on time each month – lenders will see you are responsible with your money and can be counted on to repay your debts.
How long does it take to fix credit ratings?
It takes some time to improve your credit score, but it is possible if you are willing to work at it. You may not see an immediate change in your credit rating, but if you keep up with the above steps, you should see a gradual improvement over time. Depending on how low your credit score is initially, it could take a few months or even a couple of years to reach an acceptable level.
However, it is worth the effort; a good credit rating will save you money in the long run and make it easier to get loans and other forms of credit in the future.
Although fixing your credit rating in Australia can be a long and difficult process, it is definitely worth the effort. By following the advice in our article and working hard to improve your credit score, you can eventually restore your financial stability and rebuild your life. Have you started repairing your credit rating yet? If not, what are you waiting for?
1. How long does it take for your credit history to clear in Australia?
Your credit history information is recorded for two years. Credit enquiries, payment defaults, outstanding accounts, and court judgments will all remain on your credit report for five years. Delinquent accounts classified as significant credit infractions will stay on your report for seven years.
2. How long do enquiries stay on your credit report in Australia?
Credit enquiries stay on your credit report in Australia for two years. This is how long credit reporting agencies will keep track of your credit history and any enquiries that have been made into your credit file.
3. How to fix your bad credit rating in Australia?
If you have bad credit, don’t worry. There are several things you can do to improve your credit rating: pay your rent, mortgage or credit card bills on time, or limit how many applications you make for credit. And if you want to know how long does bad credit last in Australia, the answer is anywhere between two to seven years.