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What is a bad credit score and how does it affect you?

What is a bad credit score and how does it affect you?

Whether you’re applying for a home loan, personal loan or a credit card, your credit score can significantly impact whether or not you are approved as a borrower.  

Why is my credit score so important?

Your credit score is a three-digit number calculated using the information in your credit report. When you apply for a new line of credit, a creditor may use your credit score to determine:

  • Whether you can afford to repay a loan
  • Your creditworthiness, or your reliability in making repayments

Typically, the higher your credit score, the easier you’ll find it to be approved for credit. A higher credit score can also help you unlock other benefits, including lower interest rates and more favourable terms as compared to other borrowers with a lower score. 

On the other hand, a bad credit rating is a red flag for most lenders and credit providers. If you’re applying for a loan with a low credit rating, you can expect to pay a higher interest rate than the market average. Some creditors might even reject your credit application altogether if your credit score doesn’t match their eligibility criteria. 

What is considered a bad credit score?

There’s no universally accepted definition of a bad credit score. In fact, each lender has their own classifications for what they consider to be a bad credit score and how it impacts your eligibility for a credit product with them. That being said, you can get a fair idea about bad credit scores by looking at the credit scoring system used by the two major credit reporting bureaus, Experian and Equifax. 

Credit score bands



Below average0 - 5790 - 549
Average580 - 669550 - 624
Good670 - 739625 - 699
Very good740 - 799700 – 799
Excellent800 - 1200800 - 1000

Source:Experian.com.au, Equifax.com.au.

As illustrated in the image above, the Experian and Equifax credit scoring system is divided into five tiers:

  • Excellent
  • Very good
  • Good
  • Fair
  • Poor/Below average

Generally, an Experian score below 550 and an Equifax score below 510 is considered bad. Anything below 400 is exceptionally poor.

How does a bad credit score impact me?

Lenders review your credit file and credit rating to assess the risk involved in lending you money and whether you’ll be able to repay the borrowed money or not. As a general rule, a higher credit score makes it easier to be approved for financing and credit products. Conversely, a less than ideal credit score can raise red flags for the lender and make it difficult for you to be approved or secure favourable lending terms.

If you’re wondering how you can get a bad credit score, it could be the result of anything from a missed repayment to loan default and even errors in the information listed on your credit file. That’s why it’s important to check your credit score regularly to keep an eye on your financial health. 

You should also review your credit file at least once a year, and before making any credit application, to get an idea of where you stand. If you find your credit score is lower than you expected, double-check the entries to identify any errors or discrepancies. If you find any incorrect information listed on your file, connect with the respective credit bureau to have it removed from your file.

Besides checking your credit report, you can make some positive lifestyle changes to improve your credit score. Under the comprehensive credit reporting system, both positive and negative information is listed on your credit file. 

Positive information includes paying your bills on time, clearing outstanding debts and reducing the limit on a credit card. Negative information includes delayed or missed repayments, defaulting on loans and applying for multiple credit products in a short span of time. Therefore, even if you’ve made financial mistakes in the past, taking positive steps like reducing your debts and paying your bills regularly will help improve your credit score. You can also read this article for simple tips to repair your credit and maintain it.

Questions you may have

What is the minimum income required for an American Express credit card?

The minimum income requirement for an American Express credit card will depend on the card of your choice. You must satisfy American Express’s minimum income criteria for the selected card to receive card approval. 

For instance, you should be earning a minimum of $100,000 annually if you wish to own an American Express Platinum Card. An Explorer Card eligibility criteria may be easier to meet with a lower minimum income requirement of $65,000 annually. You might also consider the David Jones Platinum American Express Card if your personal income is more than $65,000 per year and you’re interested in earning points on your daily shopping at your local DJs store. 

Can I cancel my payment on PayPal?

You may not be able to cancel all transactions made via PayPal. However, you can cancel unclaimed payments. An unclaimed payment means the recipient hasn't received or accepted it. Here is how you can cancel these types of payments:

  1. Log into your PayPal account 
  2. Click on Activity at the top of the screen
  3. Find the payment you want to cancel
  4. Click  Cancel
  5. Click the Cancel Payment button to confirm

It’s important to note that if the payment remains unclaimed for 30 days, it'll be cancelled automatically and refunded to you.

In case of completed payments, you have 180 days from the time you made your payment to contact the vendor and request a refund. You can find the seller's contact details in the activity tab. 

Also, when it comes to an unauthorised transaction, you can reach out to the Resolution Center at PayPal. Additionally, if you haven’t received the delivery from the seller, you can file a dispute against the seller to get a refund. 

Can I pay my credit card bill with PayPal?

If you earn an income in a foreign currency, you’ll typically want to use Australian dollars to pay your Australian credit card bill. You can either transfer the money or use BPAY from your bank account for this. Another option is to use PayPal to pay the credit card.

PayPal can be used to receive and make payments in different currencies. International transfers via PayPal are also possible; however, the fees may be high. You can use the PayPal balance to transfer money to your Australian bank account and then pay your credit card bill.

How to increase my Commonwealth credit card limit?

Commonwealth Bank credit cards are extremely popular in Australia for everyday purchases and big ticket items alikers. A number of the card’s functions can be customised, depending on your needs and desires. If you wish to increase your Commonwealth credit card limit using the CommBank, you can usually do so on the app or via NetBank.

In the CommBank app, tap on the ‘Cards’ icon and choose your credit card. Then, click on ‘Credit Limit’ and select the ‘Increasing your limit’ option. If you don’t have the CommBank app, you can also increase your Commonwealth Bank credit card limit through NetBank. Simply log on and go to Settings, then click on ‘Product Requests’ and then choose ‘Credit Card Limit Changes’. 

Once the bank has received your application, they will review your account and payment history. Based on this assessment, your application will either be approved or denied. If approved, your new limit will be applied to your card instantly. 

While increasing your credit card limit may be an easy process, it’s important to remember that you should only request limits that you can manage. A high limit increases the risk of having a larger debt, even with cards that provide generous rewards programs or low-interest rate options. So, it’s important to think carefully and seek advice from people you trust before increasing your Commonwealth Bank credit card limit.

How can I increase my credit card limit on my American Express card?

If you want to increase the credit limit on your American Express (AMEX) credit card, you will need to apply through the AMEX Online Services, or by calling the number on the back of your card. You may need to share personal information that the bank can use to assess whether the requested limit is suitable for you and your current financial status. Once your application is approved, your new limit will be ready for use within an hour.


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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.



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