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How Long Does A Bad Credit Score Last?
●May 12, 2021●5 minute read
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A credit score is an important number when it comes to your financial wellbeing. Whether you want to get a personal loan, car loan, or take out a mortgage, a poor credit score can affect your ability to be approved as well as the interest rate offered.
Below, we give a rundown of what a bad credit score is, how long it lasts on your report, and tips to improve your credit score.
What is a credit score?
A credit score (or credit rating) is a number based on the information in your credit report. It represents your creditworthiness and ability to repay a loan or credit card. Depending on the credit reporting agency, a credit score will be a number between 0 and 1,000 or 1,200. According to Moneysmart, the score is based on a five-point scale: excellent, very good, good, average, and below average.
Whether you apply for a personal loan, home loan, car loan, or credit card, the lender can look at your credit score to calculate how risky it is to lend to you. It can also be used to determine the interest rate on your loan. Generally, the higher the score, the lower the interest rate offered.
What is a bad credit score?
As each of the main credit reporting bureaus — Equifax, Experian, and illion — in Australia use a different score model, what defines a ‘bad’ credit score can vary. However, a score of 580 or less is typically considered poor.
Defaults, court judgements, and bankruptcies are some of the factors that can lead to a poor credit score. Some of the ways a ‘bad’ credit score can affect you include:
- Ability to be approved for a loan or credit;
- Paying higher interest rates;
- Difficulty in obtaining a mobile phone contract;
- Higher insurance premiums;
- It might make renting a property more difficult.
How is a credit score calculated?
The exact method used to calculate credit scores are kept a closely-guarded secret by the credit reporting bodies in Australia. However, to get an idea of what factors can influence your score, here is what’s included in your credit report:
||This will include your name, date of birth, address, and driver’s licence number.
|Credit or loan products
||If you’ve had any type of credit product in the last two years, your credit report will show this. This includes a credit card, personal loan, home loan, business loan, and car loan. It will include the number of loans and type which factor into your score. It will also detail the credit provider and how much you borrowed.
||For each credit product you’ve had, your report will show the repayment status, when you paid, and any missed payments.
|Defaults, bankruptcy, and default agreements
||If you’ve had any defaults, bankruptcies, court judgements, or debt agreements, this will be shown on your report.
||This includes how many applications you have made and how much you borrowed.
||If a loan or credit provider has requested to see your report, this will be recorded. Generally, the more enquiries noted on your credit file, the lower your credit score will be.
How long does a poor credit score last?
If you’ve got a poor credit score, you might be wondering how long it will last. Generally, it depends on the type of ‘negative’ information included in your credit report. This is because each type of ‘negative’ information can differ in how long it will remain on your credit report.
Here’s a rundown of how long each type will stay on your report, as outlined by the Office of the Australian Information Commissioner (OAIC):
- Credit products (2 years): Any information about credit products you’ve had will be on your report for up to two years after they are closed.
- Repayment history (2 years): For two years, the repayment history for each credit product will remain on your credit report.
- Enquiries (5 years): Every time you apply for any form of credit, an enquiry will be recorded on your file and stay there for five years.
- Defaults (5 years): A default is when a payment equal to or more than $150 is overdue for at least 60 days. It will remain on your credit file for five years. If you pay the default amount, it will still remain on your credit report but will be updated to show that it has been paid.
- Court judgements (5 years): A court judgement will stay on your credit report for five years.
- Bankruptcies (5 years): If you’ve had any bankruptcies, it will be recorded on your credit report for five years from the date you became bankrupt or two years from the date you were no longer bankrupt.
- Serious credit infringements (7 years): A serious credit infringement is when you have failed to pay an overdue debt and your credit provider has been unable to contact you for more than six months. This will stay on your credit file for seven years if left unpaid.
How to improve a bad credit rating
It’s important to understand that a credit score isn’t fixed and, if you’ve got a poor credit rating, it can be improved. Below, we’ve put together some tips that can help boost your credit score:
Pay your existing debts on time
Paying your loan or any other type of credit product on time and consistently can help improve your credit score. By having a solid repayment history, it shows lenders that you are a reliable borrower. Plus, ‘positive’ data can now be included in your credit report. Traditionally, lenders in Australia did not include ‘positive’ credit information in your report until comprehensive credit reporting (CCR) was introduced. This means if you are regularly making your repayments on time, this can be included in your credit report.
Check your credit report regularly
It’s a good idea to check your credit report at least once a year to ensure the information included is correct. Once a year, you can request a copy of your credit report for free from Equifax, Experian, and illion. After you receive your report, check that the personal information is correct and that all loans and debts are yours. If you find an error, get in touch with the credit bureau and ask them to amend it — it’s free.
Lower your credit limit
If possible, you might want to consider lowering the amount of credit you have on your credit card. This can make it easier for you to pay it off as well as reduce the amount of interest charged.
Limit number of applications
Every time you make an application for a loan or credit, it will appear on your credit report. This is regardless of whether you are approved or not. Think carefully before applying for any new credit as multiple applications can make it appear to lenders that you are in financial distress and it might reduce your score.
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Written by Katie Douglass
Katie Douglass is the Senior Communications Manager at Jacaranda Finance. In recent years, Katie’s work has appeared in publications such as Marie Claire, InStyle, Oiyo, and THE ICONIC. She has a Bachelor of Creative Industries in Fashion Communication & Journalism from the Queensland University of Technology.