How long does a bad credit rating last? – How to repair it

If you’ve ever been rejected for a home loan or a credit card, then you’ll know that a bad credit score can be a bit like an iceberg – lurking unseen until it sinks your application.

Whenever you apply for a loan, whether it be for a car, house or a credit card, your credit score will play a factor in the decision making process. Your credit score reflects the financial history listed on your credit report – including times when you’ve paid bills late, repeated applications for credit, or if you’ve ever defaulted on a payment.

Banks and other lenders look at this information to determine if you can be expected to meet the obligations of your new loan. A low credit score shows that you may have difficulties paying back what you owe on time, and the lender may decide that you’re not worth the risk.

While your credit report does also list positive things, like paying your bills on time, the negative aspects do stand out to lenders. So it’s important to repair your credit score and wait until your credit report is clean before applying for new credit cards or loans.

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How long does a bad credit rating last? How long does it take to repair it?

Depending on how bad your credit score is, and what type of defaults (unpaid debts) are listed on your credit report, it can take more than 7 years to repair your credit score.

Most minor defaults are listed on your credit report for 5 years, even after you have paid the bill. Court writs stay on your credit report for 4 years. More serious defaults such as bankruptcy or clearouts – where you owe a debt but your creditors cannot contact you, usually because you changed address without informing your creditors – are listed on your report for up to 7 years.

Thankfully, while lenders will pay attention to all of your past activity, they are typically more interested in your recent actions within the last 1 to 2 years. Having a recent history of making payments on time will help to mitigate problems in your past.

You should also make sure that all of your past debts are fully paid off. While the defaults will still be listed on your credit report, your credit report will be updated to show that you have paid those debts.

It can take years to fully repair your credit score, but don’t let that discourage you. The sooner you start fixing it, the sooner you’ll see results.

You can even usually get a credit card or a “bad credit” loan while your credit score is low, as long as you’re prepared to show that you can meet the conditions of that loan or card.

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How to repair your credit score

If you want to rebuild your credit score, read this article. Some steps that you can take include:

  1. Pay all bills on time
  2. Don’t apply for any new credit
  3. Pay off any outstanding loans and debts
  4. Keep your credit card balance low
  5. Check your debt-to-credit ratio (we explain debt-to-credit ratios here)
  6. Hold onto any accounts that have a positive record of repayments
  7. Diversify your credit if you can

Ultimately, your credit score is a reflection of your financial behaviour, and the more responsible you are with your debt, the faster your credit score will rebuild.

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This advice is general and has not taken into account your objectives, financial situation, or needs. Consider whether this advice is right for you. Consider the product disclosure statement (PDS) before making a financial decision.

Canstar provides an information service. It is not a credit provider, and in giving you information about credit products, Canstar is not making any suggestion or recommendation to you about a particular product. If you decided to apply for a home loan, you will deal directly with a financial institution, and not with Canstar. Rates and product information should be confirmed with the relevant financial institution.

Please see Canstar’s Financial Services and Credit Guide (FSCG) for more information, and read our detailed disclosure, important notes and liability disclaimer.

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