What Bad Credit Means

Having bad credit can have negative consequences for your financial future.

Read on to learn how bad credit can affect you.

What is Bad Credit?

The term “bad credit” refers to a low credit rating. Your credit rating, or credit score, is a snapshot of your credit history, and the higher the rating, the better.

So if your credit score is low, you are deemed to have bad credit.

What bad credit means - Calculator and financial record

 

How is Bad Credit Determined?

Your credit score is a reflection of your credit report, which is maintained by one (or more) of Australia’s three credit reporting bureaus.

These bureaus keep a record of each time they are contacted by a creditor, when you make a credit application.

Not only are they aware of your credit requests, but they are also advised if you default on your credit repayments, that is, if you fail to make a payment, either on time or at all.

Each time you don’t make a repayment in due course, this is filed on your report, and affects your credit score.

If you miss a single payment but are otherwise a reliable borrower, it is unlikely to impact on your credit score for long.

Conversely, if you repeatedly miss making payments, your credit score will continue sinking, and you’ll end up with “bad credit”.

Examples of late payments could be not making the minimum required monthly repayment on your credit card, or being behind in repaying a creditor for an item you purchased under finance, for example a car or refrigerator.

Other events which could cause bad credit include filing for bankruptcy or entering into a Debt Agreement, so it’s important to be aware of long term implications before undertaking either of these contracts.

The Impact of Bad Credit

Creditors are less likely to lend to individuals with bad credit, as having a low credit score indicates that you are at high risk of being unable to meet repayment responsibilities.

So if you find yourself with bad credit, you’ll notice that you are less likely to be successful in applying for credit, or if you are approved, you’ll be slugged with a much higher interest rate than borrowers with high credit scores.

This is one way that creditors compensate themselves for the risk of lending you money.

How to Improve Your Credit Rating

Firstly, get a clear understanding of where your credit rating sits. You can request your credit rating from the agencies via phone or online:

Once received, make sure that all of your personal and credit information is accurate. If you find any anomalies, submit a correction request in writing.

Once your credit report is in order, you can work on improving your credit rating by keeping on top of your repayments and getting your debt under control.

Look at the options available to you to help you get out of debt.

It’s worth seeking free financial advice to assess what is best for your situation.


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