How do I know if I have bad credit?

Bad credit can lead to a range of negative consequences and can affect your ability to apply for finance and services. Learn how to check whether you have bad credit what you can do to fix it.

Your credit file contains a range of information that lenders use to assess your suitability for a loan. It’s like a personal dossier with records of all the loans you have applied for, taken out, paid off or defaulted on.

While it is an important document, it can be difficult to see where you are in the credit landscape. So, how do you know if you have bad credit and what can you do about it?

What is “bad credit”?

Bad credit is not a completely fixed term, but it generally means you have a negative listing or other risky behaviour recorded on your credit file. Information about your current debts, repayment history, previous credit applications, defaults and credit judgements are all listed on your credit history. Some of these listings are positive and some are negative.

For example, a single credit application will not put you in the “bad credit” category, but several applications within a short space of time might. Other listings such as defaults and bankruptcies will put you in the “bad credit” category, as will late repayments.

How do I know if my credit is bad?

You first need to order a copy of your credit file. You can do so from any credit reporting body and the report can be ordered for free once every 12 months. Once you have your credit file you will be able to see your credit listings. Jump ahead to find out what listings to look out for.

Jump ahead to find out what listings to look out for>>>

Can my credit score tell me if I have bad credit?

All the information on your credit file is used to determine your credit score. A credit score from credit-reporting bureau Equifax will be a number between 0 and 1,200 that fits into one of five credit rating categories.

The lower credit categories denote worse ratings and are what is known as “bad credit”. This simply means you have a higher likelihood of a mispayment or default than the average person.

While you can’t see your credit score by ordering your free credit file, you can check it for free with

  • Excellent. 81 - 100%. This means there is a very low likelihood of an adverse event being listed on your credit file in the next 12 months when compared to the average Australian.
  • Very good. 61 - 80%. There is a low likelihood of an adverse event being listed on your credit file in the next 12 months when compared to the average Australian.
  • Good. 41 - 60%. You have a slightly less likelihood of an adverse event being listed on your credit file in the next 12 months when compared to the average Australian.
  • Average. 21 - 40%. This means there is a reasonable likelihood of an adverse event being listed on your credit file in the next 12 months when compared to the average Australian.
  • Below average. Below 20%. You have a high likelihood of an adverse event being listed on your credit file in the next 12 months when compared to the average Australian.

What listings on my credit file should I look out for?

Here are some credit listings that you should look out for on your credit file:

  • Payment history information. All active ongoing payments are listed. If you have any missed or late repayments it may lower your credit score.
  • Credit enquiries. Credit enquires, or loan applications, are not necessarily bad, but having numerous enquiries listed in a short period of time can be. Generally, applying for credit once every three months will not contribute to a lower score.
  • Overdue accounts listed as a payment default. For debts of over $150 that are more than 60 days late, a creditor may list a default. Once defaults are paid the listing should change to represent this but the default will remain on your credit file for five years.
  • Writs and summons. Any record of being summoned to court due to a debt or financial issue will be listed on your credit file. This can happen if you can’t settle the debt directly with the creditor.
  • Court judgements. A record of the outcome of any court cases relating to your debts.
  • Bankruptcy information. This will be listed if you enter into bankruptcy.
  • Overdue accounts listed as a clearout or serious credit infringement. Serious credit infringements are defaults that are not paid off. The creditor must make multiple attempts to contact you at your address without success before they can list a serious credit infringement.

What other information can negatively affect my credit?

It’s not only unpaid loans or court summons that will negatively affect your credit. Here are some other factors to consider when trying to understand your credit file:

  • High credit amounts. Borrowing a high loan amount or having a high credit limit can have a negative impact on your credit file. This is because the amount you have used of that limit isn’t listed, only the limit itself. What you use the loan for will also be considered.
  • Multiple loans. Having a few different loans for different elements of your life is generally okay, but having a lot of little loans will have a negative effect on your credit file. Try to only use credit when absolutely necessary.
  • Multiple credit listings in a short space of time. Applying for or taking out multiple loans in a fairly short period of time will have a negative impact on your file.
  • Regularly moving house or changing employment. Change in itself is not necessarily bad, but the short period of time and the irregularity will have a negative impact on your file.
  • Types of loans. The type of loan or credit you take out can negatively affect your credit file. For example, a personal loan may be seen as more risky than a credit card.
  • Age of your credit file. The longer you have had your credit file, the more accurately your behaviour can be predicted. By having little or no credit history, there is limited information on which to judge your creditworthiness.

How can I improve my bad credit?

  • Order your credit file. The first thing to do is to understand your current position. You can order your credit file for free from a credit reporting body once every 12 months, or if you have been denied credit in the previous 90 days.
  • Fix any mistakes. Check all the information and listings on your credit file for errors. If you find inaccuracies you can ask the credit reporting body you ordered your report from to correct them.
  • Prevent further negative listings. Credit listings have a lifespan and will expire with time. Five years covers all but the most serious listings. Once they are gone you can keep your file clean by ensuring all your bills and loans are paid before they are due and avoiding risky borrowing practices.
  • Get free financial advice. Some microfinance organisation provide free financial counselling to people with bad credit files. Try contacting the Good Shepherd Institute for help with debt and finances.


Picture: Shutterstock

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