What is a Bad Credit Score in Australia?

A bad credit score can make it difficult to get a loan, a credit card, or even rent an apartment. But don’t worry, there are things you can do to improve your credit score. In this article, we will discuss how to improve your bad credit score in Australia.

What is a Credit Score?

In Australia, a credit score is a numerical representation of an individual’s creditworthiness, similar to credit scores in other countries. However, the specific credit scoring models used in Australia may differ from those used in other parts of the world.

In Australia, the most widely recognised credit scoring model is the Equifax credit score, which ranges from 0 to 1,200. This score is calculated based on various factors and information contained in an individual’s credit report. The credit report includes details such as:

  • Payment history: This reflects whether you have made your credit card payments, loan repayments, and other financial obligations on time. Late payments, defaults, or other negative payment patterns can negatively impact your credit score.
  • Credit utilisation: This considers the proportion of credit you have used compared to your credit limits. High credit utilisation may indicate higher risk while keeping it low is generally beneficial for your credit score.
  • Credit history length: The length of time you have held credit accounts is considered. A longer credit history may positively impact your score, as it provides a more extensive track record of your credit behaviour.
  • Credit applications: This factor looks at the number of recent credit applications you have made. Multiple applications within a short period can be seen as a potential sign of financial stress and may negatively affect your score.
  • Types of credit: The mix of credit accounts you hold, such as credit cards, personal loans, mortgages, or car loans, is also taken into account. A diverse credit portfolio can be beneficial for your credit score.

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What is Considered a Bad Credit Score?

In Australia, credit scores typically range from 0 to 1,200, as calculated by credit reporting agencies like Equifax. While the exact definition of a bad credit score may vary among lenders and institutions, a credit score below 670 is generally considered to be in the lower range and may be viewed as less favourable.

Having a credit score below 670 suggests a higher level of credit risk to lenders. It may indicate a history of late or missed payments, defaults, significant debt, or other negative credit behaviours. A lower credit score can impact your ability to obtain credit and may result in less favourable loan terms, higher interest rates, or even rejection of credit applications.

It’s important to note that lenders and financial institutions have their own criteria for assessing creditworthiness. Some may have stricter standards and consider scores below a certain threshold, such as 600 or 650, as indicative of poor credit. Others may have more lenient criteria or take additional factors into account when evaluating credit applications.

Regardless of the specific threshold, it’s generally advisable to strive for a higher credit score in order to access better financial opportunities. Maintaining a good credit score involves practising responsible credit management, such as making payments on time, keeping credit utilisation low, and managing debts effectively.

Regularly monitoring your credit report, addressing any inaccuracies or errors, and seeking professional advice if needed can help you improve your credit score and financial standing.

What Can You Do to Improve Your Credit Score?

There are a number of things you can do to improve your credit score. Here are some additional actions you can take to improve your credit score:

  • Diversify your credit mix: Having a mix of different types of credit accounts, such as credit cards, loans, and mortgages, can positively impact your credit score. It demonstrates your ability to handle various forms of credit responsibly. However, it’s important only to take on credit that you can manage and repay comfortably.
  • Use credit responsibly: Responsible credit usage involves using credit cards and loans judiciously. Keep your credit utilisation ratio low by using only a small portion of your available credit. Aim to pay off your credit card balances in full each month to avoid accumulating high levels of debt. Demonstrating responsible credit behaviour over time can positively impact your credit score.
  • Establish a positive credit history: If you’re new to credit or have a limited credit history, it can be helpful to establish a positive credit record. This can be achieved by opening a secured credit card or becoming an authorised user on someone else’s credit card account. Making timely payments and maintaining a low credit utilisation on these accounts can help build your credit history.
  • Be patient and consistent: Improving your credit score takes time and consistent effort. It’s important to practice good credit habits consistently over an extended period. Make timely payments, keep your credit utilisation low, and demonstrate responsible credit behaviour. With time, these actions can lead to an improved credit score.

How Long Does It Take to Improve Your Credit Score?

When it comes to improving your credit score, the time frame can vary depending on individual circumstances. There is no fixed timeline, as credit scoring models consider various factors and their impact on your creditworthiness. However, here are some general considerations:

  • Short-term impact: Making positive changes to your credit habits, such as paying bills on time and reducing credit card balances, can have an immediate positive effect on your credit score. Lenders typically report updates to credit bureaus monthly, so you may start seeing improvements within a few months.
  • Medium-term progress: Building a good credit history takes time. Consistently demonstrating responsible credit behaviour over a longer period can strengthen your credit profile. This includes maintaining low credit utilisation, making timely payments, and avoiding new credit inquiries. Generally, several months to a year of positive credit activity can have a noticeable impact on your credit score.
  • Long-term improvement: Building a strong credit history is a gradual process. It can take years to establish a solid credit foundation and achieve a significantly improved credit score. Factors like the length of your credit history, the age of your accounts, and the time since negative events (e.g., missed payments) occurred all contribute to the long-term trajectory of your credit score.

It’s important to note that negative information, such as late payments or defaults, can remain on your credit report for several years, typically up to seven years in Australia. However, their impact on your credit score gradually diminishes over time as positive credit behaviour replaces the negative history.

Consistency, patience, and responsible credit management are key when it comes to improving your credit score. By consistently practising good credit habits over an extended period, you can steadily increase your creditworthiness and see long-term improvements in your credit score.

Improving Your Credit Score and Beyond

Improving your credit score is a journey that requires patience, consistency, and responsible financial management. By implementing the strategies mentioned earlier, such as making timely payments, reducing debt, and maintaining a positive credit history, you can steadily improve your creditworthiness.

However, if you are an Australian expatriate living overseas or a foreign buyer looking to purchase a home in Australia, navigating the mortgage process with bad credit may present additional challenges. In such cases, it is highly recommended to seek guidance from a mortgage broker who specialises in bad credit loans and has experience working with expatriates or foreign buyers.

Our team of expert expat mortgage brokers can provide tailored assistance and help you find lenders who are willing to work with your specific circumstances. They understand the complexities involved in obtaining a mortgage with bad credit and can guide you through the process, ensuring you have the best possible chance of securing the financing you need.

Don’t let bad credit discourage you from pursuing your homeownership goals. Take the first step towards improving your credit and securing a mortgage by speaking with our expat mortgage broker today.

Contact us to schedule a consultation, and let us help you navigate the path to homeownership with confidence.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently asked questions

The average credit score in Australia is 670. However, the average score can vary depending on the credit reporting agency and the scoring model used. 

A good credit score is typically considered to be above 700. A fair credit score is typically considered to be between 600 and 700. A poor credit score is typically considered to be between 500 and 600. A bad credit score is typically considered to be below 500.

It takes time to improve your credit score. However, if you make consistent efforts to improve your credit, you will see results over time.

There are a number of things you can do to improve your credit score. Here are a few tips:

  • Make your payments on time: This is the most important factor in determining your credit score.
  • Pay down your debt: The lower your debt-to-credit ratio, the better your credit score will be.
  • Increase your credit limit: Having a higher credit limit will show lenders that you are responsible for credit.
  • Get a copy of your credit report and dispute any errors: If there are any errors on your credit report, dispute them immediately.
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