What is a bad credit score in Australia?

A positive credit file is essential for getting you the best rates on loans (debt consolidation loans, for example) and for many other financial endeavours (some examples include retirement planning and paying a mortgage).  However, not knowing what can affect your credit score can result in a bad credit rating.

Continue reading to find out what bad credit scores are in Australia, how to improve your score, and more.

What is bad credit in Australia?

Both Experian and Equifax (popular credit bureaus) state that a credit rating of 500 or lower is bad credit, meaning you have a bad credit history (with poor FICO scores). Specifically, bad credit for Experian is less than 579 and less than 549 for Equifax.

The credit score range shows that when you have a score of over 600, you have average credit. 

Credit scoring depends on numerous variables, including paying your bills on time, not using too many credit card accounts (especially using a credit card with bad credit), and not using credit cards for bad credit transactions (some examples include bad credit mortgage payments and bad credit home loans).

What is good credit in Australia?

According to Experian, positive credit is a score between 670 and 739 (Equifax states that positive credit reporting results in a score between 625 and 699).

If your score is in this range (in either of these scoring models), you will have a positive credit history, meaning that you can obtain better rates on credit products like credit mortgages.

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How long will my bad credit last?

The amount of time your poor credit will last on your credit file entirely depends on what you did to negatively impact your credit score.

Some examples of events that negatively impact your credit score include:

• Missed payments (or late payments) can result in low credit scores. For example, you will lower your credit score if you do not pay off your debt (credit card debt, for example) or are late paying your bill.
• Missing any errors on your credit reports can lead to a lower credit score. Comprehensive credit reporting can help you avoid serious mistakes on the reports.
• Receiving a court judgement for a missed payment can result in black marks during a credit check.
• Having too many credit applications or credit enquires at once can lower your credit score. Therefore, take caution before taking out a new credit application and use a repayment calculator to make credit payments on time.

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If you encounter any of these problems, you expect your lousy credit to last for a few years. However, if you work to improve your credit score, you could lower that time significantly.

How long will it take me to increase my credit score from 500 to 700?

Although the gap between the poor and good credit score bands may seem small, it can take years to close that gap and improve your credit score and remove yourself from financial hardship. To close the gap in the score range, make payments on time, use fewer credit cards and create fewer credit applications (a debt agreement, for example).

However, you should expect the process to take time, and you need to dedicate yourself to it by taking action every day to gradually improve the score and close the gap between the scoring ranges.

How can I quickly raise my credit score?

If you have a sub-par credit score and credit reporting, there are several things you can do to improve it.

For example, you should significantly lower your credit limit to show reporting agencies and other people who may want to see your credit rating (mortgage brokers, for example) that you do not overextend yourself. You should also lower your credit utilisation rate by using credit cards less (and making agreements with lower credit rates).

You should also limit the number of applications you make with credit providers because these can get out of control and lower your credit score. Additionally, if you have multiple credit cards, you should consider cancelling some (pay off credit cards with bad credit before cancelling them). 

You should also consider using a secured credit card (credit reporting agencies prefer this if you have a poor credit score).

You should also ensure that your payment history is clean by paying your bills on time and making mortgage payments before due dates (positive repayment history will significantly increase your credit score). You also need to apply these principles to income tax; use an income tax calculator to ensure to pay the correct amount.

If you are unsure about how to improve your credit score, seek financial advice or financial counselling so they can help you understand how you should proceed; you should also do this if your personal finance level is low (you will need to provide personal information to them for them to help you).

In summary

To help you avoid bad credit scores from a credit reporting agency, you need to recognise the dangers that can lead to them. Here are some examples of aspects to remember building credit (credit repair) and increasing borrowing power:

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• Make payments on time (like annual fees) to improve your score on the score range, and pay as much of a mortgage or loan as a lump sum to lower the repayments.
• Monitor your credit report; tracking your credit score can help you flag any errors or habits you need to change (if you apply for credit cards that you do not need, for example).
• Use calculators to ensure you make correct payments (a debt costs calculator, a mortgage calculator, etc.).

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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