How Long Does a Poor Credit Rating Last?

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

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Whenever you apply for credit or a loan, whether it be for a car, house or a credit card, your credit score may play a significant role in the approval process. Your credit score reflects the financial history listed on your credit report – including times 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 help them 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 not to lend to you as a consequence.

It’s important to note that your credit report also lists positive behaviours, like paying your bills on time – you can go here to read more about positive credit reporting. So, if your credit score is holding you back, think about taking active steps to repair it, and consider waiting until your credit report has improved before applying for new credit cards or loans.

Also keep in mind the help available to you if you’re suffering from financial issues or stress; financial counsellors can provide free information and assistance to individuals in every Australian state and territory.

Note that financial counsellors are not the same as ‘debt solution’ companies; ASIC’s MoneySmart warns consumers employing the services of these organisations, saying they “can charge high fees for things you can do yourself”.

How long does a poor credit rating last, and how long does it take to repair it?

According to consumer credit reporting agency Equifax, negative information can stay on your credit report for approximately seven years, depending on how poor your credit score is and what type of defaults (unpaid debts) are listed on your credit report.

Equifax says that most late payments and negative accounts (accounts that are overdrawn or in debt) can remain on a credit report for up to seven years from the date of the first missed payment, while some bankruptcy public records can stay on a credit report for seven to 10 years.

While lenders will most likely pay attention to all of your past activity, they may be most interested in your recent actions within the last one to two years. Having a recent history of making payments on time may help to mitigate payment problems from your past.

It’s typically a good idea to also make sure all of your past debts are fully paid off where possible. While the defaults will still be listed on your credit report, your credit report will be updated to show you have paid those debts.

It could take some time to fully repair your credit score, but don’t let that discourage you. The sooner you start fixing it, the sooner you’re likely to see results.

The first step you should take is obtaining a copy of your credit report and making sure any loans, debts, or defaults listed are actually yours. ASIC’s MoneySmart advises that if you disagree with something listed on your credit report, you can ask to have it changed, or at least have it recorded that you disputed the listing(s).  

If you’re struggling financially, wanting to improve your credit score doesn’t necessarily prevent you from seeking assistance. There could be options for you if you need a little extra cash flow and want to get a credit card or 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. However, you should do your research and decide for yourself if one of these products is right for you, as they often come with relatively high interest rates.

The table below displays a snapshot of credit cards with 0% balance transfer offers on Canstar’s database, with links to providers’ websites. These results are sorted by the length of the 0% balance transfer period (longest to shortest), then provider name (alphabetically).

Compare Balance Transfer Credit Cards

How to repair your credit score

Something to keep in mind if you want to repair or improve your credit score is that doing so generally won’t be a quick and easy process. It may take a significant amount of time to do, and require an extended period of financial responsibility on your part.

All of that being said, if you want to rebuild your credit score check out a few top tips on how to improve your credit rating. You may not be able to make use of every tip below, but some of them may prove useful in repairing your credit score. That being said, some steps that you can take include:

  1. Paying all bills on time
  2. Thinking carefully before applying for new credit
  3. Paying off any outstanding loans and debts
  4. Keeping your credit card balance low
  5. Checking your debt-to-credit ratio and see if you can improve it
  6. Holding onto any accounts that have a positive record of repayments
  7. Diversifying your credit if you can

Compare Debt Consolidation Balance Transfers

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