Your guide to navigating finance options with bad credit.
Having a bad credit score can make it hard to get approved for financial products such as credit cards and loans. But it's important to remember there are still options available. Use this guide to find out what lenders define as "bad" credit, what credit options are available if you don't have a high credit score and how to find the best option for you.
What is "bad" credit?
There is no one definition of bad credit. In fact, just as your definition of "bad" may differ from another person's, one lender's definition will be different to another's. But in general terms, bad credit means that you have negative listings on your credit file. This could include defaults, bankruptcy, debt agreements, multiple recent credit enquiries and even missed or late payments.
If you're unsure of what's on your credit file, you can get your free credit score and then see what credit band you're in. You can also order a free copy of your credit file to get a better understanding of your credit position.
How to understand your credit position
Whenever you apply for a credit card, use it for transactions or make a repayment on the account, it has an impact on your credit file. The same is true for other forms of credit, such as personal loans or mortgages.
This information can help lenders decide whether or not it will be a risk to approve you for new credit accounts or higher credit limits (along with other information such as your income and employment). This makes your credit file and credit score an important resource when figuring out what credit cards or loans you can apply for.
When you get your free credit rating, your details will place you into one of these credit grades:
|Credit position||Equifax Score||Percentile||Likeliness of an adverse event being recorded on your file in the next 12 months|
|Below average||0-509||81-100%||Very highly likely|
The bad credit checklist
Have you done any of the following? It may mean you have bad credit.
- Missed a credit card or loan payment in the last two years. Your monthly payment information can appear on your credit file and will remain there for two years.
- Defaulted on a credit card or loan in the last five years. Overdue accounts of $150 or more that are 60 days or more overdue remain on your file for five years and damage your credit score.
- Declared bankruptcy in the last five years. A bankruptcy listing remains on your credit file for five years from the date you become bankrupt or two years from the date you are discharged, whichever is later.
- Made multiple enquiries for credit cards or loans in the last six months. While credit enquiries remain on your file for five years, they are not necessarily a negative listing. Credit enquiries are really only a red flag to lenders and affect your credit score negatively if there are multiple enquiries in a short space of time and these are in the last few months.
Credit cards and bad credit
Having a bad credit rating can make it almost impossible to get a new credit card. This is because bad credit suggests that you might not be able to repay a credit card balance on time or in full, which also increases the risk of you falling into further debt. As banks and credit card providers in Australia have to follow responsible lending practices, this risk could mean they decline your credit card application when you have bad credit.
What about "bad credit credit cards"?
Sometimes you might hear people talk about credit cards that are designed specifically for people with bad credit. Known as "bad credit credit cards" or "no credit check credit cards", to many people these cards can sound like a solution when you have a poor credit score.
But there are currently no credit cards in Australia that you can apply for without having your credit checked, this includes cards that offer "instant approval". If you do apply and you're declined, it could hurt your credit score even more. So instead of looking for a credit card when you have bad credit, you may want to focus on improving your credit score or looking at alternatives to credit cards.
Short-term and alternative personal loan options with bad credit
Here are some of the credit and loan options that may be available when you have any negative listings on your credit file or your credit score falls in the lower credit score ranges and you find that you are not eligible for a traditional credit card or loan:
- Short term loan. This is a loan of between $100 and $2,000 that you can apply for with bad credit. You'll pay an establishment fee of 20% of what you borrow as well as a monthly fee of 4% and loan terms generally range from 62 days to one year.
- Medium amount loan. These are slightly larger loans available to people with adverse credit histories. Usually offered by lenders that also provide short term loans, they are available for up to $5,000 or $10,000 and come with a rate of up to 48% p.a. Loans of between $2,001 and $5,000 also come with a $400 establishment fee.
- Centrelink cash advance. If you receive Centrelink payments you may be eligible for an advance. Eligibility depends on how long you've been receiving your payments and how much you receive. Keep in mind you can only receive a cash advance once per year.
- No Interest Loan scheme (NILs). This scheme is provided by Good Shepherd Microfinance and allows those on low incomes or healthcare or pension card holders to apply for loans of between $300-$1,200. These loans must be used for essential goods and services and you need to show a willingness and capacity to repay.
- Bad credit applicants considered
- Fast approval service
- Borrow up to $2,000
100% confidential application
Sunshine Short Term Offer
A short term loan with a fast and easy application available to those with good or bad credit. You can apply today and get approved for up to $2,000.
- Loan amount: $2,000
- Loan term: 9-15 weeks
- Turnaround time: 30 minutes (conditions apply)
- Fees: 20% of borrowed amount + 4% of borrowed amount each month
- Income requirement: 50%+ of income cannot be from Centrelink
- Bad credit borrowers OK
- Quick and easy Approval
- No Credit Checks
Short-term loan alternatives for applicants with bad credit
If you find an error on your credit file, it's important to report it and have it resolved as soon as possible. An error could be as simple as an overdue account that is now paid but is showing up as unpaid on your credit file or something as serious as identity theft.
The first step to resolving errors on your credit report is to contact the credit bureau (such as Experian or Equifax) directly. They can provide steps for how to fix the error. You also have the option of contacting the credit provider directly.
If you are unsure of how to deal with any errors or issues, you might want to seek the assistance of a credit repair service (such as Princeville Credit Advocates) to clean up your credit file. These services do come at a cost, but you're more likely to resolve the issues quickly and more thoroughly with the help of a professional.
See our guides for more tips on how to remove a default or enquiry from your credit file and how to lodge a dispute with your credit card issuer.
How to keep a good credit file or repair bad credit
Whether you want to protect your finances or already have a bad credit score, there are a few simple steps you can follow to repair your credit history:
- Make your repayments on time. It may seem simple, but always pay your bills on time. If you think you might forget, set up a calendar reminder or auto-payments so that your bills are paid automatically from your debit card account. If you struggle to pay your bill each month, consider requesting that your statement due date is moved closer to your pay date or get in touch with your issuer to discuss your options rather than having an overdue account.
- Regularly review your statements and credit file. Each time you receive your credit statement, make sure to look over it carefully to ensure there aren't any fraudulent transactions or mistaken transactions listed on there. It's also important to regularly review your credit report and score to make sure it's in good standing. You should always check your credit report before you apply for another credit card or loan, but you should also be checking your credit history at least once a year to make sure it's on track.
- Seek financial help. If you are having difficulties paying a bill or managing a debt, contact your issuer to discuss financial options (such as payment plans, reduced interest rates or extended due dates) to avoid defaulting on your payments and leaving a negative mark on your file.
Bad credit impacts many Australians. Unfortunately, a missed repayment or ongoing debt can be enough to impact your credit file for years to come. While most credit card issuers won't approve an applicant with bad credit, personal loan and short-term loan options are available in the meantime. Just make sure you compare your options and understand the costs involved before applying. As well as applying for alternatives, it's important to understand how bad credit works and what you can do to get your finances back in control.
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