Bad Credit Score: How Do You Get It, How It Affects You, And How To Erase It

Finance expert Lacey Filipich explains what you need to know if you have a bad credit score – including how to get one, how it affects future loans, and how to erase it.

Like our access options debt have spread (I’m looking at you Buy now, pay later), Australian consumers have become more credit-savvy affecting their finances.

Some of you may have even had your credit rating rated “bad”.

If you haven’t thought about your grade before, it might look like a big “F” on your report card for something you didn’t even know you were taking.

If this bad credit score affects whether you can get something you need – for example, a mortgage – what can you do to remedy it?

First, let’s start with the origin of this note.

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How your credit score works

The credit scoring system is a regulated shortcut. Lenders can see at a glance via your score if you are a good bet financially. It’s not the only thing they review, but it’s part of the mix to assess you as a customer.

Keep in mind that a lender is anyone who might send you an invoice. Even a gas bill paid at the end of the usage period is like a credit, isn’t it? They offer you a service or a product. Whether you pay them, on time and in full, is a reflection on how you deal with debt.

Over time, your debt behavior generates your aggregate score.

Your rating depends on:

  • What types of debt you have already used.
  • If you paid off those debts on time.
  • If you have defaulted on invoices or refunds, which means you have not paid by the agreed date and / or the agreed amount (time limits and dollar value apply).
  • Credit requests you have made elsewhere.
  • Whether you went bankrupt or had to negotiate a deal to change the way you pay off debt through legal channels.
  • How many requests have been made for your credit report from other credit providers.

Actions that are perceived as positive, such as paying your debts in full and on time, improve your credit rating.

Actions perceived as negative, such as missing payments or defaults or numerous credit checks, lower your credit rating.

And it doesn’t matter what you bought with debt. Credit scores do not reflect the value of the asset for which the debt has paid off.

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bad credit score

What is a “bad” rating and how do I get one?

There are three main credit bureaus in Australia: Equifax, Experiential and Illion.

Just to make it difficult, they use different scales (0 to 1000 or 1200) and different thresholds to define “good” and “bad”. Thanks * very much * guys.

With Equifax, “bad” is 505 or less. For Experian, it’s 549 or less. And with Illion, it’s 299 or less.

Because credit scores are based on rolling information – typically five to seven years of your monthly debt behaviors – they can change a lot.

If you repeatedly pay late bills, fail to pay debts you’ve incurred, or apply for many different forms of credit, your rating drops.

You could also be negatively impacting something that you would consider unfair or wrong appearing on your credit report.

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Can you correct your credit rating if it is bad?

If your loan application was rejected due to a bad credit rating, it’s a good idea to check your report through one of these three agencies.

Mistakes can happen. Incorrect names or incorrect account information may mean that you have been assigned to stocks owned by someone else.

Intentional fraud can also occur. If someone steals your identity and starts racking up debt against your name, you want this to be resolved quickly.

There may also be notes in your file that you feel are unfair. Maybe the lender didn’t notify you properly or listed a default while you were disputing the charges (which they shouldn’t).

To correct errors or unfair articles, you can request changes. This will give you a positive impact on your credit rating quickly.

Sometimes a bad credit score is like the impact of a poor diet or lack of exercise. It’s real and it depends on your behavior.

And just like diet and exercise, quick fixes usually don’t work. These are constant and positive debt behaviors. Over time, these little steps add up to a better credit score.

First, pay. Your. Debts. At. Time. All your debts – utility bills, credit cards, mortgages, etc.

If you can’t make your payments, talk to your lender proactively so you can come to a mutually satisfactory arrangement. This means that you don’t get a strike against yourself with the credit bureaus. Consider talking to a financial advisor if you are using debt to cover your basic needs because that is not a good place to be.

Second, use debt wisely. Don’t ask for a credit card. Keep your credit card limits to a reasonable minimum.

Finally, channel the old Pantene mantra: it won’t happen overnight, but a good credit score. will happen (if your behaviors are positive).

Be patient and reasonable, and you will get there.

Lacey is the founder of Money school and Maker Kids Club, where she shares lots of ideas and tips to make the whole family smarter with their income.

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