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How long does it take to fix a poor credit score

Improving your credit score can be a long journey. Read to learn more.

08 November 2022Lloyd Smith 5 min read
How long does it take to fix a poor credit score , low credit score, low credit rating, improving credit score

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When you have a low credit rating or a low credit score, it can be incredibly difficult for you to get the best interest rates for credit cards and loans. You could also find it difficult to get approved for loans, credit cards, or even a rental apartment. In some cases, a poor credit rating can affect your chances of getting a new job too.

But there is some good news – Even if you have a low credit rating right now, it is possible to rebuild it and steadily fix a poor credit score.

Let's take a look at how you can do that

A credit score is a three-digit number, usually between 300-850, which depicts your creditworthiness or the likelihood of you paying your bills on time. The credit rating or credit score is calculated using the information available in your credit report. The information can include credit history, credit mix, credit utilisation, payment history, and more.

Higher credit scores mean lenders consider you a better borrower and they are likely to provide more offers with lower interest rates.

While the credit score ranges can differ according to the different credit scoring models, generally a credit score below 600 can be considered average. While a score between 580-670 can be considered almost poor, a score between 300-579 is considered poor.

Credit score ranges are often similar to this:

  • Below 300: Very Poor
  • 300-579: Poor
  • 580-669: Fair/ Average
  • 670-739: Good
  • 740-799: Very good
  • Above 800-850: Excellent

Since your credit score is often the first thing lenders check when you apply for a new credit card, personal loan, or mortgage, a low credit score can prove to be detrimental.

Moreover, comprehensive credit reporting (CCR) is now included in all credit reports in Australia, which means both your positive and negative financial behaviours get listed on your credit report and they can significantly affect your credit rating in Australia.

When you are in the ‘poor’ credit score band, you are essentially in the bottom 20 percent of the overall population that is credit-active. That also means you are likely to get fewer offers and higher interest rates than the rest of the 80 percent.

Potential and regular rejections

With a poor credit rating, it can become all too common to get rejected for new loans or new lines of credit including car loans, personal loans, private student loans, and others.

Higher interest rates

Since lenders believe individuals with low credit scores to be less likely to make payments on time, a higher interest rate is charged on new credit lines, even when an application is approved. This can in turn make paying off loans and credit card bills even more difficult.

For instance, if you are planning to get a loan for a new home, you may only be able to get one at higher interest rates. Some lenders may even ask you to put down collateral.

Fewer options for renting

A low credit score can also make it challenging to rent out properties. Landlords often check the credit score of potential tenants to assess their ability to pay rent on time before finalising the lease. In most cases, lenders obtain credit reports of interested tenants along with their applications.

If you have made some big financial mistakes and ended up with a low credit score, you may find it difficult to convince landlords to rent you their property. Landlords may even ask you to cosign a lease or pay a higher security deposit if you don’t have a good enough credit score.

Security deposits for utilities

Even utility companies including cable, electricity, and phone companies check your credit rating as part of their application process. If you have a bad credit history or poor credit rating, you might be required to pay a bigger security deposit.

Higher insurance premiums

Insurance companies use credit scores to determine your risks as an individual. In other words, they use the credit score to determine how you should be paying for your insurance premiums.

Usually, the better your credit score, the lower your insurance premiums would be. On the other hand, a low credit score would mean higher insurance premiums.

As your credit rating gets affected due to numerous factors listed on your credit report, bad credit in Australia can last long as those factors stay on the credit report.

The timeframes for how long the different factors stay on the report can vary a lot. So if you are wondering how long do credit inquiries stay on your credit report or how long does a default stay on your credit file, the answer to that is – It depends.

Here’s an average estimation that you can expect.

  • Repayment history: Two years
  • Credit inquiries: Five years
  • Overdue accounts listed as clearouts or payment default: Five years
  • Overdue accounts listed as serious credit infringements: Five years
  • Court judgements: Five years
  • Writs and summons: Five years
  • Debt agreements, personal insolvency, and bankruptcy: Five to seven years

It's important to note that even if you do end up paying the overdue debt, a record of it will stay on your credit report for over five years. Though, your credit report will get updated to show that you have already made payments against it.

While you can’t entirely do a credit wipe in Australia, you can take steps towards credit report repair. Here are some ways you can clear credit score and replace it with a higher score:

1 - Regularly check your credit score and report

The first step toward fixing your credit score is to check your credit report and credit score to understand the underlying reasons why you have a bad credit score.

With ClearScore, you can access your credit report online in just a few minutes by signing up with your email address and providing your details. You also get access to in-depth insights and suggestions in order to improve your credit score.

Remember that checking your credit score is considered a soft inquiry or a soft check and it does not affect your credit rating in any way.

2 - Search and dispute any errors in your credit report

You should routinely scan your credit report for any errors and discrepancies that might be affecting your credit score in a negative manner. If you do end up finding an error or inaccurate information on your credit report, make sure that you file a dispute to get it removed right away.

When you file a dispute with a credit bureau regarding an error, they have 30 days to investigate and get back to you with an answer. The bureau may even contact you for additional information during this span of time.

If they do find it to be an error, it will get taken out from your credit report and your credit score improves accordingly.

3 - Pay your bills on time

Payment history is one of the biggest factors that affect your credit score as it accounts for over 35 percent of the total score. That means, if you want to improve your credit score, you need to make sure you are paying all of your bills on time.

While it's recommended that you pay your bills in full, if you just can't afford it at the moment, you can make sure to pay at least the minimum amount required for you to pay in order to avoid late fees. When you pay the minimum amount, it slowly decreases the principal amount that you owe, which in turn helps improve your credit score.

To make sure you don’t miss out on monthly payments, you can also set up automatic payments.

4 - Consider debt consolidation

In case you have a lot of pending debts and you have been struggling to manage monthly payments for each of them, you can also consider debt consolidation to fix your poor credit rating.

Debt consolidation refers to taking out a new loan to combine all of your other pending debts and liabilities. Your multiple debts get combined into one singular loan, usually with a lower interest rate and more favourable payoff terms. You can use debt consolidation to pay off credit card debts, personal loans, student loans, and others.

Before you go about fixing a bad credit score, you need to know your current credit score and the different aspects in your credit report that might be leading to a poor credit rating.

Check your free credit report with ClearScore today.

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Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.