How long will I have bad credit?

How long will I have bad credit?

Your credit score helps lenders determine whether or not you’re a reliable borrower. Unfortunately, not everyone has an unblemished record. Some individuals may have developed a bad credit rating. Determining how long you might be burdened with this financial blemish can be somewhat tricky.

Depending on a range of circumstances, and oftentimes an individual’s proactiveness to see the matter resolved, it can take months or even years to improve your credit score.

It’s sensible to check your score regularly and make efforts to improve your rating. If not, your bad credit may linger.

What is a credit score?

Your credit score is an important tool that lenders review to determine your borrowing capacity and your ability to make repayments on debts. A good credit score may assist when negotiating financing.

There are three primary credit reporting bureaus keeping credit scores in Australia - Equifax, Expirian and illion.

While credit scores and the way they’re ranked may differ slightly between the various credit reporting agencies, the general idea is that credit scores reside within five ranges: below average; fair; good; very good; and excellent.

Scores are defined by a number - typically between 0 and 1,200 - to indicate how credit-worthy you are. The higher the score, the more agreeable your credit rating is. Equifax reports that most people’s credit scores are between 300 and 850. A good score is one above 621.

There are no costs associated with obtaining your credit scores and an inquiry won’t affect your score.

Credit score scale

The credit score scale above represents Equifax’s ratings.

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How often does your credit score change?

The frequency at which your credit score changes will depend on how often a bank, lender or provider submits information to the credit bureaus, and how often a credit bureau assesses your credit history and payment behaviour.

It’s estimated that creditors report to credit bureaus every 30-45 days. When these agencies receive this information they may then assess its implications and potentially update your individual credit score. Unfortunately, how often credit reporting bureaus actually change or amend credit scores is not public knowledge.

Credit bureaus cannot feasibly analyse the payment behaviour and credit information of every eligible Australian every single day. Instead, we might assume that this information is updated approximately once every three months. This assumption is based on the fact that you can request a free copy of your credit history from any of the major bureaus every three months.

However, this doesn’t necessarily mean that even if you’re doing things to improve a bad credit rating, your score will definitely increase every few months. Implementing a range of ongoing practices to better your financial responsibility will reap benefits over the long term.

What can affect your credit score?

A bad credit score could be the result of missed credit card repayments or more significant events, such as a home loan default or bankruptcy claim. There may also be errors that exist in the information listed on your credit file.

Some of the factors that can potentially impact your credit score include:

  • The length of your credit file
  • The frequency at which you open and close fiscal facilities, such as bank accounts and credit cards
  • The type and amount (credit limits) of credit you have applied for in the past
  • Credit applications, including any rejections
  • Your repayment history - both positive and negative
  • Negative events, such as late payments or default judgements, court writs, or bankruptcies

Prior to the introduction of Comprehensive Credit Reporting (CCR), credit scores in Australia only reflected adverse credit events, such as late payments and defaults. These days your credit file should also include positive repayment behaviour, such as paying off loans and bills on time.

Equifax suggests that you can expect different events to remain on your credit report for varying lengths of time.

Positive events:

  • Active accounts paid as agreed - will remain on report if the account is open, such as repaying a mortgage
  • Closed accounts paid as agreed - may stay on your report for up to 10 years

Negative events:

  • Hard enquiries into your credit report - up to 2 years
  • Late repayments - may last up to 7 years
  • Collection or charged-off accounts - may last up to 7 years
  • Bankruptcy - may last from 7 - 10 years
  • Other events, including repossession and foreclosures - up to 7 years

The consequences of some negative matters can persist and influence your credit rating for years. Despite this, it can be advantageous to attempt to improve your credit score as often as possible.

What can you do to improve your bad credit?

Here are some tips that may give your credit score a boost and potentially assist future loan or credit applications.

  • Check your credit report: As your credit score is based on the information in your credit report, it’s worthwhile to regularly review it. Look through and make sense of how each listing might have contributed to your credit rating. There’s also the chance that errors have been made by either a lender or the credit reporting agency. If that’s the case, get in touch with the relevant agency and request an amendment.
  • Don’t be late with your payments: You might think you’re safe by not missing any payments, but late payments may still weaken your credit score. If being tardy can cost you money in the long run, it could be worth your time to be punctual with your mortgage repayments, rent, credit cards and utility bills.
  • Avoid making too many loan applications: Refrain from applying for multiple loan applications in a short span of time. Every loan application you make and every rejection you receive will appear on your credit history.
  • Work on reducing your existing debts: Being debt-free or having fewer debts is a plus to lenders when assessing loan applications. If you’re in a position to, try consolidating debt and diminishing existing deficits. One way to do this is by making contributions on top of your minimum repayments. Keep in mind some lenders may charge fees for this.
  • Grow your savings: Another effort that may offer lenders a positive impression is having a nice stash of cash in the bank. Lenders usually want to see recent bank statements, so a track record of consistent savings will pay off.
Product database updated 01 Dec, 2023
Fact Checked

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