According to data released by the Reserve Bank of Australia (the RBA), as of the 31 August 2022 there were 13.17 million credit and charge card accounts and around 17.5 million credit and charge cards operating in Australia. The average credit card balance in August 2022 was $2,907, while the average credit card balance that accrued interest during the period was $1,354 This means that around 47% of the outstanding balances on credit and charge cards were unpaid, and accrued interest.
This RBA data points to the fact that a significant proportion of the Australian population is using credit products and many of them don’t pay their due amounts in full on time. This suggests that many may have bad credit. But what exactly is considered bad credit, what might be causing it and how can you fix it? Read on to find the answers.
What is considered bad credit?
Bad credit basically refers to a person’s history of failing to pay bills on time, and the likelihood that they will fail to make timely payments in the future. If you have an overdue credit card balance or have missed payments, you’ll invariably have bad credit. However, to be sure of how bad or good your history with credit is, credit reporting agencies calculate your credit score.
Your credit score is usually within a band of 0 to 1,000 or 0 to 1,200, depending on the credit reporting agency. The higher the score, the better will be your credit rating and vice versa. The following table will give you a general idea of how good or bad your credit score is:
|Credit Score Range||Contact|
|0 - 509||Below Average|
|510 - 621||Average|
|622 - 725||Good|
|726 - 832||Very Good|
|833 – 1,200||Excellent|
There are three major credit reporting agencies operating in Australia: Equifax, Experian, and Illion. Each credit reporting agency adopts slightly different credit ratings for different credit bands, so you can expect some variance. For example, Experian and Illion have credit scores ranging from 0 to 1,000, whereas Equifax uses scores in the range of 0 to 1,200. Generally, if your score is below 509, you have bad credit and should work on improving it.
What causes bad credit?
If you have a “Below Average” credit score, the following negative items on your credit report might be contributing to your bad credit score.
- Missed or late repayments
- Debt agreements
- Court judgement
- Frequent credit applications
How can you fix bad credit?
Though having bad credit is a cause of concern, you shouldn’t worry too much because there are plenty of ways to fix your bad credit. With so many Aussies struggling with managing their debts, these three tips can help everyone to fix their bad credit problems.
1. Check your credit report regularly for errors
Credit reporting agencies in Australia allow you to get a free copy of your credit report every three months. You should get your report and ensure that all the information recorded on it is accurate. If you find any mistakes on it, you need to contact the credit reporting agency or the credit provider to get it fixed. Here is a list of some potential mistakes that you should look for in your credit report:
- Incorrect loan amount or double entries.
- Debt is erroneously entered in your name, which can be a case of mistaken identity or fraudulent activity.
- Omitted repayment history.
- Incorrect personal information, such as name, date of birth, drivers licence number, etc.
2. Pay your bills on time, every time
With the introduction of Comprehensive Credit Reporting (CCR), credit reporting agencies are required to record all credit behaviour, such as your repayment history, types of credit products you have taken, credit limits on your credit accounts, account opening and closure date, and 24 months repayment history. This means that if you pay your bills on time, you will not only have a positive repayment history, but it will also improve your credit score. If you struggle to remember to pay your bills, consider setting up automatic payments. Debts or bills valuing more than $150 and 60 days overdue are listed on your credit report as defaults, which remain on your report for up to five years, irrespective of whether you subsequently pay them or not.
3. Minimise new credit applications
Each time you apply for a new credit, the credit provider makes a hard enquiry to check your credit score. The enquiry is recorded on your credit report whether or not your application gets approved. Frequent credit applications within a short span of time imply that you desperately need credit to stay afloat and are in financial trouble, which can reduce your credit score and damage your chances of getting a loan at favorable rates.
Can you get a loan despite having bad credit?
A bad credit score can lead to lenders being reluctant to lend to you or charging you higher interest rates and fees, and you might have to settle for loans with strict terms. Because of your bad credit history, lenders deem it risky to lend you money and seek compensation for the extra risk they are taking by dealing with you. Some lenders might ask you for collateral as well. However, it is not impossible, although it is difficult, to get a loan if you have a poor credit score.
If you need small and short-term loans and have bad credit, you can consider payday loans. Some payday lenders might be willing to lend you money as they only look at your current ability to repay rather than your past credit history. However, make sure you do your research first, check out our recent blog Everything You Need to Know About Bad Credit Payday Loans , for more information.
With 13.7 million credit card and charge card accounts being active in Australia as of August 2022, we can say that a large population in Australia use credit cards and many other credit products. Also, as per the RBA’s data for the month of August 2022, around 47% of the credit card’s average unpaid balance was accruing interest. This means that a significant portion of Australian credit card holders do not pay their credit card bills in full and delay their bills, and hence the 47% unpaid interest-accruing balance on their cards. So, if you are struggling with managing your debts and have a bad credit score, you’re not alone. However, the tips we mentioned in this post are easy to follow and can help you go a long way in improving your credit score.