What a bad credit rating means to you

29th of July 2011 | by RateCity Staff

When we leave school or university we think our days of credits, marks and performance rankings are over. But it's really just beginning. When you apply for any type of loan, whether it’s a credit card, personal or home loan, you are instantly being accessed by your credit rating. Just like your school performance, your credit rating can determine what you can and can't do in the future.

Sounds a bit heavy? There are ways to get around a bad credit rating but the best is to simply pay your bills and make your repayments diligently. 

What is your credit rating?

A credit rating estimates a person or company’s credit worthiness and is an evaluation made about a borrower’s overall credit history. It's an accurate tool financial institutions use to see whether you are capable of paying off your debt.

Your credit rating, or credit file, is updated by credit providers when you apply for a credit card or loan. It’s then accessed by potential lenders to help them determine whether or not to lend you money.

A credit file typically includes information about you such as your name, age, gender, driver’s licence details and residential and employment information. It may also contain consumer credit information from the past five years as well as commercial credit information and details from the public record such as bankruptcy information or court judgements.

This information is held about you and primarily used by banks, building societies, finance companies, telecommunications and utility companies to assist them in assessing credit applications.

Viewing your credit rating

In Australia, the Office of the Australian Information Commissioner provides details about how to obtain a copy of your credit report or credit rating. There are two main reporting agencies – Veda Advantage and Dun & Bradstreet.

It may be a good idea to view your credit rating before applying for a new loan or credit card in case you wish to dispute any information that tarnishes your credit rating.

That’s because a poor credit rating indicates a higher risk of defaulting on a loan and can lead to your loan or credit card application being knocked back.

Some institutions will still lend to a person with a less than perfect credit history (in the case of some personal or car loans), but you’re likely to have to pay a higher rate of interest for the privilege.

If you disagree with your credit rating you do have the right to state so and can leave a note in your credit file detailing any discrepancies.

Overcome a poor credit rating

If you’re in the market for a credit card and are concerned about your credit rating the best thing you can do is to show consistency. Pay down existing debts or outstanding bills and establish a savings pattern. This will show potential lenders that you’re able to service a loan or make regular repayments on a credit card.

Use these tips to get you on your way to healthy credit

  • Limit your applications – you might be tempted to put in several credit card applications thinking you’ll increase your chances of approval, but doing so can negatively impact your credit rating particularly if you’re knocked back.
  • Compare credit cards – shopping around and comparing the best credit card deals can help you overcome your poor credit ratings by allowing you to save and make regular, timely repayments. Use the RateCity credit card comparison tool to begin your search and start rewriting your credit history.