Even if you have a bad credit rating, there are still some credit options available to you.
Having a bad credit score can reduce your chances of approval when applying for a future credit card or loan. Bad credit is often a result of late repayments and defaults on a loan, but can also occur if there’s an error on your file.
While most credit card issuers won’t approve applicants with a negative credit rating, there are some other credit options available to you. Use this guide to understand what bad credit is, pick up tips for improving your credit file and to compare your financial alternatives if you have bad credit.
Alternatives for applicants with a bad credit rating
Unfortunately, all Australian credit card issuers require card holders to have a good credit history to receive approval. So if you’re desperate for a loan but have a bad credit rating, you’ll need to look elsewhere for credit alternatives.
For example, you might need to compare short-term loans or personal loans. Some of these options don’t require credit checks, though you will still need to prove some form of income. Keep in mind that these loans often have shorter turnaround periods than credit cards. This means you might be required to repay a short-term loan within 10 weeks rather than 3 to 20 months as you could with some credit cards.
Make sure you compare these factors, as well as the interest rates and other costs involved, before applying. Otherwise, if you want another way to budget and manage your cash, you could also consider a debit or prepaid credit card.
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Short-term loan alternatives for applicants with bad credit
What is bad credit?
Whenever you apply for a credit card, make a repayment or make a transaction with your credit card, it has an impact on your credit file. Your credit file and credit score are used by lenders (as well as other information such as your income and employment) as a way to determine whether you’re a low-risk applicant.
If your credit file has evidence of missed or late repayments, overdue accounts, large debt and defaults, it’s likely that you will have bad credit. Your credit file contains payment defaults dating back five years, so it’s important to keep this in mind when applying for a card or any sort of credit. Unfortunately, most credit card providers in Australia do not approve applicants with a bad credit history.
If you’re unsure if you have a good or bad credit rating, you can order a copy of your credit file from credit reporting agencies, such as Veda, Experian or Dun & Bradstreet. In fact, Veda will provide you with a VedaScore that you can use to determine whether you have a good or bad credit rating. Your VedaScore will be a number between 0 and 1200. A “good” credit score is between 622 and 725, a “very good” score is between 726 ad 832 and an “excellent” score falls between 833 and 1200.
Some companies can also help you repair your credit file, usually for a fee. This option could come in handy if you want to increase your chances of loan approval but don’t know where to start.
How do you get bad credit?
Bad credit can come as a result of a few things. You only have to forget to pay a utility bill on time once or exceed the limit on your credit card and you could have a black mark placed on your credit file. Similarly, if your power is cut off or your car repossessed, this information is also kept on your credit file for years. Other factors that can have a negative impact on your credit file include overdue accounts, large debts and late credit card repayments.
When you apply for a loan or credit card, the issuer will review your credit history and use the evidence on your credit file as a way to determine whether you’re a suitable applicant to approve. If your credit history contains evidence of defaults and missed bills, the bank or institution is going to be less likely to approve you.
How to find out if you have a bad credit file.
The details on your credit report will help you determine whether or not you have bad credit. You can apply for a free credit report once a year through each of the credit reporting agencies in Australia: Veda, Experian, Dun & Bradstreet or the Tasmanian Collection Service (for Tasmanian residents). The details these agencies have on file can vary, so you may want to request a copy of your credit file from each of them. Alternatively, you could apply for a credit check through a credit repair agency, which may offer additional services for a fee.
What to do if you find an error.
If you find an error on your credit file, it’s important to report it and have it resolved as soon as possible. An error could be as simple as an overdue account that is now paid but is showing up as unpaid on your credit file. As these defaults can remain on your credit file for five years, reporting them as soon as you see them will ensure they’re investigated sooner and will hopefully reduce the negative impact it could have on your file.
If you are unsure of how to deal with any errors or issues, you might want to seek the assistance of a credit repair service (such as Princeville Credit Advocates) to clean up your credit file. These services do come at a cost, but you’re more likely to resolve the issues quickly and more thoroughly with the help of a professional.
See our guides for more tips on how to remove a default or enquiry from your credit file and how to lodge a dispute to your credit card issuer.
How to keep a good credit file or repair bad credit
Whether you want to protect your finances or already have a bad credit score, there are a few simple steps you can follow to repair your credit history:
- Timely repayments. It may seem simple, but always pay your bills on time. If you’re prone to forgetting, set up a calendar reminder or auto-payments so that your bills are paid automatically from your debit card account. If you struggle to pay your bill each month, consider requesting that your statement due date is moved closer to your pay day date or get in touch with your issuer to discuss your options rather than having an overdue account.
- Regularly review your statements and credit file. Each time you receive your credit statement, make sure to look over it carefully to ensure there aren’t any fraudulent transactions or mistaken transactions listed on there. It’s also important to regularly review your credit file to make sure it’s in good standing. You should always check your credit file before you apply for another credit card or loan, but you should also be checking your credit history at least once a year to make sure it’s on track.
- Credit repair. Whether you want to repair your credit file yourself or seek the advice of a professional, working to improve your credit file by removing errors, paying down your debt or making timely repayments can help improve your likelihood of approval in the future.
- Seek financial help. If you are having difficulties paying a bill or managing a debt, contact your issuer to discuss financial options (such as payment plans, reduced interest rates or extended due dates) to avoid defaulting on your payments and leaving a negative mark on your file.
- Conduct a balance transfer. If you’re struggling to repay a debt on your credit card, consider transferring your balance to a credit card with 0% interest for a promotional period. Not only will you pay down your debt faster, you won’t have the burden of interest adding to your debt as you pay it down.
Bad credit impacts many Australians. Unfortunately, a missed repayment or ongoing debt can be enough to impact your credit file for years to come. While most credit card issuers won’t approve an applicant with bad credit, personal loan and short-term loan options are available in the mean time. Just make sure you compare your options and understand the costs involved before applying. As well as applying for alternatives, it’s important to understand how bad credit works and what you can do to get your finances back in control.Back to top