Lloyd Smith
General Manager AU
What is a Bad Credit Score?
8 min read
Looking to understand whether you have a 'bad' credit score? This guide will help you understand credit scores and give some insight into the path to good credit health.
Your credit score is a number that helps lenders assess your past relationship with credit. Lenders consider individuals with higher scores as lower risk and individuals with lower scores as higher risk. There can be different scoring models used to calculate scores from your credit report, and these scores are then shared with lenders when you apply for credit.
But no matter which credit bureau and scoring model computes your score, the conclusion always stays the same - A bad credit score can severely impact your report and make it difficult for you to get approved for new credit applications.
While the exact range for a bad credit score in Australia can depend on the credit scoring model, a score is considered bad or poor if it falls in ranges such as 0-549 (Experian) or 0-579 (Equifax, below average), depending on the bureau.
Understanding credit score bands better can help you analyse what you can do to improve your score. See your free credit score today and get started.
Disclaimer: This content is general information only and not personal financial advice.
The top credit score bands
Credit scores are usually divided into different credit score bands or categories to make it easier for lenders to come to a decision about how likely you are to repay loans on time.
As stated above, different credit bureaus may have different scoring models and how your credit score is calculated may also differ, but this is what the most common credit score range looks like:
It's important to note that credit score bands vary by bureau. At ClearScore we use the following bands:
Score range | Band name | What it means
Score range | Band name | What it means |
|---|---|---|
| Score range 0–409 | Band name Let’s start climbing | What it means A lower credit score may mean you’re seen as a high-risk borrower. This could be due to past defaults or missed payments. Lenders may charge higher interest rates or decline applications, but there are steps you can take to improve your score. |
| Score range 410–519 | Band name Moving on up | What it means Scores in this range show improvement but may still reflect limited or damaged credit history, such as recent defaults, debt consolidation, or being new to credit. |
| Score range 520–604 | Band name On good ground | What it means Around the average range. You’re generally seen as a safe borrower and may qualify for short-term loans and a wider range of credit cards. |
| Score range 605–724 | Band name Looking bright | What it means Above-average creditworthiness. You’re likely to qualify for a wide range of credit products with competitive rates. |
| Score range 725+ | Band name Soaring high | What it means Excellent credit. You should be able to access most credit facilities confidently and are viewed as very low risk. |
While a bad credit score can have many consequences, it is important to remember that it is not permanent. By understanding what has been affecting your score and what is keeping it low, you can make subsequent improvements to your key financial habits and go higher up on the credit band range.
How long does a bad credit score last in Australia?
Your credit score is a product of various factors in your credit report, such as late payments, charged-off accounts, bankruptcies and under Australian regulations, most negative listings like defaults, judgments, and serious infringements stay on your credit report for 5 years from the date listed. Positive repayment history typically remains for 2 years. Credit enquiries remain on your credit report for 5 years.
Under Comprehensive Credit Reporting (CCR) or Positive Credit Reporting in Australia, the credit file also reflects positive behaviours that can subsequently improve the score in addition to the negative information that might be taking down your score. This, in turn, means that the effect of bad credit scores in Australia can be offset by regular positive financial behaviour.
While negative information can stay on your report for up to 5 years, you can improve your score with positive behaviour under Comprehensive Credit Reporting.
What factors can create a bad credit score?
Bad repayment history
If you default on your loan or credit repayments often, it can start piling up quickly on your credit report as bad payment history, which can, in turn, affect your credit score severely. The more unpaid repayments you have, the lower your credit score will be.
Short credit history
When you don't have a considerably long credit history, your credit score will invariably be low since the lenders do not know what kind of candidate you are. To build your credit history, you can take a look at entry-level credit products or ensure all bills are paid on time.
Multiple hard inquiries
When you apply for too many loans and credit applications in a small span of time, it can add multiple hard inquiries to your credit report, which can, in turn, impact your credit score. Instead, it is recommended that you wait for a few months before applying for a new credit line if you have faced a few application rejections recently.
What are the impacts of having a bad credit score?
Higher than usual interest rates
A lower credit score means that lenders see you as a risky candidate to extend credit, and because of that, they will most likely charge a higher interest rate if they end up approving your credit application. This can significantly increase your borrowing costs and affect your finances.
Reject of loan and credit applications
When lenders assess credit applications, they see a low credit score as a mark of lower creditworthiness. Therefore, your applications can get subjected to more rejections. In many cases, you may not even meet the minimum requirements set by the lender for the given credit product and face an instant rejection.
Difficulty in renting
A bad credit score can also hinder your ability to rent a place. Landlords often run a credit check to see if you can keep up with regular rental payments on time or not. They are especially suspicious of applicants who might have a history of late payments, bankruptcy, or foreclosures. In case your credit score is too low, you may lose your chance to rent out the place that you want.
Opening utility, internet and phone accounts
Your credit score also gets reviewed by utility & telco companies when you try to open a new account. If you have a bad credit score, it may create a big roadblock in the process. In some cases, utility companies may even ask for a large refundable deposit.
Paying higher premiums
Many auto insurance companies may charge you a higher premium than others if you don't have a good payment history and outstanding debts.
How to fix a bad credit score
Pay off your old debt
Before you do anything, you need to pay off your outstanding debt and settle accounts. You should check your credit report to see if there are any outstanding amounts or partially paid amounts that need to be written off.
When you don't pay your debt, more interest piles up over the principal amount and it also severely affects your credit score. On the other hand, paying off your debt can significantly boost your score.
Apply for your short-term loans
Instead of applying for bigger loans, for which you may get rejected since you already have a bad credit score, you can apply for short-term loans and repay them on a regular basis to improve your score. The interest rate might be high, but by opting for a small loan and not missing any monthly payments, you can make sure you don't accrue a lot of interest.
Never miss your payments
Payment history is undeniably one of the biggest factors that will influence your score. And to keep a good payment history, you need to be consistent with bill payments. Not only will this improve your score, but it will also help you avoid late payment fees or huge interest charges.
One of the ways you can ensure you don't miss out on payments is by setting autopay mechanisms for recurring bills such as student loans or utility bills.
In case you're facing financial issues, you can also reach out to your credit provider for easier repayment options. You can also go about adjusting due dates if all your payments are due on the same day of the month, making it more difficult to pay them on time.
Check your credit report regularly
Always keep a close tab on the major factors in your report that are responsible for bringing down your score. In addition, keep an eye on errors such as hard inquiries that you did not approve of, or some other form or inaccurate debt amounts you see. If there are any such errors, you should dispute the errors and get them taken off of your credit file to quickly improve your credit score.
Avoid applying for multiple credit products together
If you apply for multiple loans or credit cards at the same time, it can, in turn, generate multiple hard inquiries on your credit report. This can directly affect your credit scores. Also, when lenders check your credit report to determine your creditworthiness, they will also be able to see that you have been applying for several credit products and possibly stretching yourself thin.
If you get rejected, wait a few months before applying again to avoid multiple hard inquiries.
Your credit score is not a permanent number
Remember that even if you have a less-than-ideal credit score right now, it's not a permanent number that will forever haunt you and make it difficult for you to get a new line of credit. It is possible to improve your credit score and become an ideal candidate. By following these steps, you can work towards following the right steps consistently and avoid making any financial mistakes.
At ClearScore, we make it easy for you to track your credit score regularly. Sign up to check your credit report today.
What is a Bad Credit Score?
Lloyd Smith
General Manager AU
8 min read
Looking to understand whether you have a 'bad' credit score? This guide will help you understand credit scores and give some insight into the path to good credit health.
Your credit score is a number that helps lenders assess your past relationship with credit. Lenders consider individuals with higher scores as lower risk and individuals with lower scores as higher risk. There can be different scoring models used to calculate scores from your credit report, and these scores are then shared with lenders when you apply for credit.
But no matter which credit bureau and scoring model computes your score, the conclusion always stays the same - A bad credit score can severely impact your report and make it difficult for you to get approved for new credit applications.
While the exact range for a bad credit score in Australia can depend on the credit scoring model, a score is considered bad or poor if it falls in ranges such as 0-549 (Experian) or 0-579 (Equifax, below average), depending on the bureau.
Understanding credit score bands better can help you analyse what you can do to improve your score. See your free credit score today and get started.
Disclaimer: This content is general information only and not personal financial advice.
The top credit score bands
Credit scores are usually divided into different credit score bands or categories to make it easier for lenders to come to a decision about how likely you are to repay loans on time.
As stated above, different credit bureaus may have different scoring models and how your credit score is calculated may also differ, but this is what the most common credit score range looks like:
It's important to note that credit score bands vary by bureau. At ClearScore we use the following bands:
Score range | Band name | What it means
Score range | Band name | What it means |
|---|---|---|
| Score range 0–409 | Band name Let’s start climbing | What it means A lower credit score may mean you’re seen as a high-risk borrower. This could be due to past defaults or missed payments. Lenders may charge higher interest rates or decline applications, but there are steps you can take to improve your score. |
| Score range 410–519 | Band name Moving on up | What it means Scores in this range show improvement but may still reflect limited or damaged credit history, such as recent defaults, debt consolidation, or being new to credit. |
| Score range 520–604 | Band name On good ground | What it means Around the average range. You’re generally seen as a safe borrower and may qualify for short-term loans and a wider range of credit cards. |
| Score range 605–724 | Band name Looking bright | What it means Above-average creditworthiness. You’re likely to qualify for a wide range of credit products with competitive rates. |
| Score range 725+ | Band name Soaring high | What it means Excellent credit. You should be able to access most credit facilities confidently and are viewed as very low risk. |
While a bad credit score can have many consequences, it is important to remember that it is not permanent. By understanding what has been affecting your score and what is keeping it low, you can make subsequent improvements to your key financial habits and go higher up on the credit band range.
How long does a bad credit score last in Australia?
Your credit score is a product of various factors in your credit report, such as late payments, charged-off accounts, bankruptcies and under Australian regulations, most negative listings like defaults, judgments, and serious infringements stay on your credit report for 5 years from the date listed. Positive repayment history typically remains for 2 years. Credit enquiries remain on your credit report for 5 years.
Under Comprehensive Credit Reporting (CCR) or Positive Credit Reporting in Australia, the credit file also reflects positive behaviours that can subsequently improve the score in addition to the negative information that might be taking down your score. This, in turn, means that the effect of bad credit scores in Australia can be offset by regular positive financial behaviour.
While negative information can stay on your report for up to 5 years, you can improve your score with positive behaviour under Comprehensive Credit Reporting.
What factors can create a bad credit score?
Bad repayment history
If you default on your loan or credit repayments often, it can start piling up quickly on your credit report as bad payment history, which can, in turn, affect your credit score severely. The more unpaid repayments you have, the lower your credit score will be.
Short credit history
When you don't have a considerably long credit history, your credit score will invariably be low since the lenders do not know what kind of candidate you are. To build your credit history, you can take a look at entry-level credit products or ensure all bills are paid on time.
Multiple hard inquiries
When you apply for too many loans and credit applications in a small span of time, it can add multiple hard inquiries to your credit report, which can, in turn, impact your credit score. Instead, it is recommended that you wait for a few months before applying for a new credit line if you have faced a few application rejections recently.
What are the impacts of having a bad credit score?
Higher than usual interest rates
A lower credit score means that lenders see you as a risky candidate to extend credit, and because of that, they will most likely charge a higher interest rate if they end up approving your credit application. This can significantly increase your borrowing costs and affect your finances.
Reject of loan and credit applications
When lenders assess credit applications, they see a low credit score as a mark of lower creditworthiness. Therefore, your applications can get subjected to more rejections. In many cases, you may not even meet the minimum requirements set by the lender for the given credit product and face an instant rejection.
Difficulty in renting
A bad credit score can also hinder your ability to rent a place. Landlords often run a credit check to see if you can keep up with regular rental payments on time or not. They are especially suspicious of applicants who might have a history of late payments, bankruptcy, or foreclosures. In case your credit score is too low, you may lose your chance to rent out the place that you want.
Opening utility, internet and phone accounts
Your credit score also gets reviewed by utility & telco companies when you try to open a new account. If you have a bad credit score, it may create a big roadblock in the process. In some cases, utility companies may even ask for a large refundable deposit.
Paying higher premiums
Many auto insurance companies may charge you a higher premium than others if you don't have a good payment history and outstanding debts.
How to fix a bad credit score
Pay off your old debt
Before you do anything, you need to pay off your outstanding debt and settle accounts. You should check your credit report to see if there are any outstanding amounts or partially paid amounts that need to be written off.
When you don't pay your debt, more interest piles up over the principal amount and it also severely affects your credit score. On the other hand, paying off your debt can significantly boost your score.
Apply for your short-term loans
Instead of applying for bigger loans, for which you may get rejected since you already have a bad credit score, you can apply for short-term loans and repay them on a regular basis to improve your score. The interest rate might be high, but by opting for a small loan and not missing any monthly payments, you can make sure you don't accrue a lot of interest.
Never miss your payments
Payment history is undeniably one of the biggest factors that will influence your score. And to keep a good payment history, you need to be consistent with bill payments. Not only will this improve your score, but it will also help you avoid late payment fees or huge interest charges.
One of the ways you can ensure you don't miss out on payments is by setting autopay mechanisms for recurring bills such as student loans or utility bills.
In case you're facing financial issues, you can also reach out to your credit provider for easier repayment options. You can also go about adjusting due dates if all your payments are due on the same day of the month, making it more difficult to pay them on time.
Check your credit report regularly
Always keep a close tab on the major factors in your report that are responsible for bringing down your score. In addition, keep an eye on errors such as hard inquiries that you did not approve of, or some other form or inaccurate debt amounts you see. If there are any such errors, you should dispute the errors and get them taken off of your credit file to quickly improve your credit score.
Avoid applying for multiple credit products together
If you apply for multiple loans or credit cards at the same time, it can, in turn, generate multiple hard inquiries on your credit report. This can directly affect your credit scores. Also, when lenders check your credit report to determine your creditworthiness, they will also be able to see that you have been applying for several credit products and possibly stretching yourself thin.
If you get rejected, wait a few months before applying again to avoid multiple hard inquiries.
Your credit score is not a permanent number
Remember that even if you have a less-than-ideal credit score right now, it's not a permanent number that will forever haunt you and make it difficult for you to get a new line of credit. It is possible to improve your credit score and become an ideal candidate. By following these steps, you can work towards following the right steps consistently and avoid making any financial mistakes.
At ClearScore, we make it easy for you to track your credit score regularly. Sign up to check your credit report today.