Did you know that if you’ve ever borrowed money or taken out credit (including things like credit cards, mobile phone or electricity accounts), then you will have a credit score?

Financial institutions use this score when deciding whether or not to approve finance applications — so it’s pretty important to try to keep your score in good standing.

We discuss some general things to consider, to avoid a bad credit score, as well as what you can do to improve your credit score if it’s already taken a bit of a hit.

Step 1: Pay all your bills on time

The easiest way to develop a bad credit rating is to pay your bills late (or not at all). Get into the habit of paying all your bills on time, every time. A good strategy is to set up direct debits from your bank account, so you don’t forget about any loan repayments you have to make.

It might pay to sit down and come up with a budget, so you know how much money you expect to come in and how much you expect to go out each month. This can help keep on top of monthly repayments.

Step 2: Don’t get yourself into too much debt

Another good way to help you avoid falling behind on your repayments and developing a poor credit history is to avoid getting into too much debt. Avoid using credit cards to buy things you can’t afford — the interest expense can pile up quite quickly if you struggle to pay your bill in full each month. Before you make any purchase decisions, consider whether you can really afford it.

Step 3: Monitor your money and develop a budget

Understand when you’re getting paid and when your regular expenses fall due so you can develop a budget that will allow you to make all your repayments on time. A budget is also helpful for working out how much money you have left over after all your expenses are paid. This can help with goal setting and saving for the future.

Step 4: Start saving to give yourself a buffer

Developing good saving habits helps you to build up a buffer so you can deal with the most unexpected expenses as they crop up, rather than putting them on your credit card and risking missing repayments.

Steps to improve your credit score

If you already have a bad credit rating, there are steps you can take to improve it. Beginning with the first four steps we’ve already outlined is a good place to start.

The following steps may also help to improve your credit score.

Step 5: Work out a repayment plan for your overdue debts

If you have overdue repayments, contact your lender and work out a revised repayment plan as soon as possible. Most lenders will be prepared to work with you to resolve the issue. And once you have a revised repayment plan in place, make sure you stick to it!

Step 6: Avoid making multiple finance applications

It’s a big mistake to make multiple finance applications for someone with a great credit score, let alone a person with a bad score. Some people are tempted to do it in the hope that they’ll get lucky, and one of their applications will be approved, but avoid making multiple finance applications at all costs. Every time a finance application is made and your credit score is checked, this is recorded. Numerous records like this can damage your credit rating even further, so it can place you in a downward spiral.

Step 7: Watch your credit card limit

If you have multiple credit cards, and you have difficulty paying them off when due, you could be putting yourself (and your credit score) in a dangerous position.

Lowering your credit card limit reduces the amount of debt that you can get yourself into, which in turn may make it easier to make your repayments on time. However, you should also keep in mind, lowering your credit limit can decrease your credit utilisation rate.

Lowering your credit limit can help with getting a loan approved, for the simple fact that your ability to repay the loan is higher, as you are no paying off a high credit card bill at the same time.

If you follow our general advice (or at the very least, as many of them as possible), then you could see your credit score improve over time. When it does, you will find it easier to get finance approved, at more favourable terms.

How to find out your current credit score

You can find out your current credit score and get a free credit report by contacting Australian credit reporting agencies like Equifax, Experian or illion. Each of them has slightly different scoring systems, but you will be able to see your credit score on their scale.

A credit score of less than 600 is generally considered to be a bad (or below average) credit score by most credit reporting agencies in Australia. If you find that your credit score is in the bad category when you check it, take steps to improve it as soon as possible.

When you receive your credit score, you will also receive your credit report. Make sure all the information in the credit report is accurate. If it’s not, you have a right to get it corrected as soon as possible. You will need to provide evidence of any errors.

How long does bad credit last?

This depends on what’s caused your bad credit score. For example, not repaying a debt at all has a bigger negative impact than repaying a debt late. Late or default repayment history can stay on your credit file for up to seven years.

Can you still get finance if you have bad credit?

Yes, if you choose a lender like Finance One, which specialises in providing loans for Australians who have a bad credit history. Unlike banks and many other financial institutions, we will look at your future when assessing your application, not your past. We believe in second chances.

How long does it take to get a loan approved if you have bad credit?

Finance for bad credit applications can be approved for eligible applicants in less than 48 hours*.

*48 hour approvals are subject to satisfactory documentation being provided to assess the application.

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances.  We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

Content prepared by an external writer covering topics that may be of interest to our customers. The content does not necessarily represent the views or opinions of Finance One Commercial.

All loan applications subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.

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