- A bad credit score doesn’t automatically mean you need to say goodbye to credit forever.
- Comprehensive credit reporting means there are things you can do to help repair and rebuild your credit rating.
- We take a look at the credit cards that you have the best chance of being approved for if your credit score needs work.
Your credit score, sometimes called a credit rating, is a numerical representation of the information in your credit report. Lenders refer to this score to determine if they should approve you for credit cards, mortgages or personal loans.
Track your credit score with Finty. It's free. Check as often as you like online or with our app.
But what happens if you damage your credit score?
Let’s face it, it can happen to anyone. Maybe you’ve paid some bills a little late or missed a payment here and there. Perhaps you’ve found yourself between jobs and suddenly you can barely manage to keep a roof over your head and food on the table, so you’ve maxed out your credit cards.
It doesn’t take long for your credit score to falter.
You’re probably aware that it’s going to be a lot harder to rebuild a broken credit score than if you’re just starting out.
So, is it sayonara to credit forever, or are there ways to rebuild your score?
First, let’s look at a very welcome change to credit reporting that’s been introduced progressively over the past seven years.
In this guide
Comprehensive Credit Reporting (CCR)
Before CCR was introduced, your credit report was based on a negative reporting system, with information such as defaults and bankruptcies listed in your credit history. Basically, the system was designed to focus on the five late payments you made in the last 10 years and not the 115 payments you made on or before the due date.
And you’re right. This wasn’t very fair.
So, since July 1, 2019, the Big Four banks (NAB, CommBank, Westpac and ANZ) have been required by law to share positive consumer credit data with credit bureaus. Some lenders have always voluntarily shared this information, but mandating the Big Four to do the same was a game-changer. And by September 2022, all credit providers will be obliged to provide comprehensive data about your credit performance.
Why is this such great news for those trying to rebuild their credit score?
Perhaps the most important thing for you, if you’re trying to rebuild a damaged credit score, is the opportunity to rebuild faster. Due to these changes, your credit report will consider all your previous good history and not just your recent not-so-good history.
How long does a default stay on my report and how long will it take to rebuild?
A default stays on your credit report for:
- five years
- seven years in the case of a clearout
If you pay the debt, your credit report will still list the default, but it will also show that you've paid it.
As for rebuilding, a lot depends on your situation.
Some people need to improve their credit after fairly minor glitches like a missed payment or maxed limits. Some need to overcome bankruptcy. Others must deal with things they didn’t even realise would affect their credit history, such as applying for too many credit cards or closing down a credit card.
But it’s not all bad news, because, while lenders will look at your history, it’s the most recent events they’ll use as a basis for their lending decisions. So, having a recent history of payments made on time and no defaults will go a long way in your favour.
It’s also a good idea to make sure all past debts are paid off. While the default will still be listed, the report will be revised to show you’ve paid those debts.
But you can’t rely only on the changes to CCR alone to improve your credit score. You’ll have to work on it yourself as well.
Straightforward ways to improve your credit score
Luckily, there are some simple things you can do that will boost your credit score in the right direction.
Check your credit score
To make it super easy, try using our free credit score tool. It takes you just one minute to register, and you can see what information is on your report and be notified each time your score changes. Remember, to secure your personal data, we require your driver’s licence and phone number to verify your details.
Dispute anything that is untrue
If you can remove any black marks on your credit history it can make an immediate and positive effect on your credit score – once those changes have been picked up by the credit reporting system. Don't dispute things with the credit reporting agency (Finty Australia work with Experian) take up your case with the credit provider who left the black mark on your record. If you can prove that you paid a bill with a telco on time and that they have incorrectly reported your account having gone into arrears or even defaulted, you can tell them to correct the record. Early on in your efforts you don't need to get a credit repair agency involved so long as you have the time and motivation to do it yourself. You can get professional help if you get stuck or need legal firepower. Speak to one of our mortgage brokers to see if you need to go down this path to be approved for a home loan.
Pay bills on time
Seems simple, but we all know how easy it is to forget to pay a bill. Did you know that a debt or bill of more than $150, overdue by more than 60 days, will be noted on your credit report and will remain there for five years? For renters, consider paying your rent using your credit card for the purpose of rebuilding your credit score – so long as you can always pay your monthly credit card bill on time and in full.
Pay off all your debts (or as much as you can)
Much like paying your bills on time, making sure you pay all your outstanding debts is another easy way to improve your credit history. As we mentioned above, although these debts will stay on your history for a certain amount of time, even when you’ve paid them off, what will factor in your favour is that they’re all paid. This shows an ability to repay credit. And that’s exactly what lenders are looking for.
Lower your credit limits
If you’ve got a high credit limit on a credit card and you don’t use it, then consider lowering the limit. This way, you won’t be tempted to spend that little bit extra, which may be the little bit extra that tips the scales against you.
Diversify your credit
Show you’re not only in control of your finances, but you can juggle a range of different credit types with aplomb. Even if you have a fairly low credit score, these lines of credit may still include:
- A mobile phone contract with the Telco's
- A secured personal loan or car loan
- Interest-free in-store finance for a large purchase
Having a diverse credit portfolio may improve your credit score. But take care not to overextend, and use credit only when you need it.
Afterpay, Zip and other Buy Now Pay Later products typically don't show up on your credit file because it's voluntary for BNPL providers to report. Treat your Afterpay like a credit card. Avoid late payments or defaulting entirely to ensure that it doesn't drag down your credit score.
Restrain applications for credit
When you’re applying for credit, it’s tempting to apply to many different lenders so you can choose who you prefer to go with. However, this tactic can backfire. Because each application is recorded on your credit file, your credit score will take a hit. Rather than applying for many credit products and risk possible rejections which will further damage your credit history, research and apply for credit only as necessary. The Finty Australia website is a useful comparison way to help you find the best credit card for you.
Using a credit card to rebuild credit
But there is some good news, because even while you’re working to rebuild your credit score, you may still need a credit card. However, it’s unlikely that a bank would approve an application for anything other than a basic credit card. Even then, there is risk of a rejection, which won’t do your credit score any favours in the short term.
So, consider “First timer” credit cards with a bank that you are a customer with a bank account. Entry level cards tend to have lower criteria for approval.
At the end of the day, it may be worth thinking about not getting another card and concentrating on rebuilding your credit history in the ways we’ve just talked about. Whatever you decide to do, be smart, research well and only take credit that you really need.
FAQ's
How long does it take to rebuild your credit score?
If you can successfully remove black marks wrongly recorded on your credit file then you should see your credit score move up within a matter of months. Serious negative events such as late payments of 60+ days overdue or defaults will take 5-7 years to drop off your records. If you can start to action the other rebuilding activity then you can expect to track the progress over 3-12 months. It takes patience to rebuild your credit score.
Can I get a secured credit card?
Unfortunately no, secured credit cards are not available in Australia. A secured credit card is a product available in the US or the UK to people with a low credit score. How it works is that the cardholder places a cash deposit with the lender, of an amount equivalent to the desired credit limit on the card. For example, a $500 deposit would get you a card with a $500 credit limit. The lender can access the deposit as compensation in case of a default by the cardholder. Using this type of card responsibility can help to improve the cardholder’s credit score, and the deposit would eventually be released, making the card unsecured.
Can I get a credit builder credit card?
No. Credit builder credit cards are also not available in Australia. Credit builder credit cards available in the US or the UK work in a similar way to secured credit cards, but without the requirement for a security deposit. Applicants with a poor credit score may be approved for a card with a very low credit limit, meaning that they can only make small purchases, and very high interest rate. Once again, if they use the card responsibly and make full repayments of the balance owing each month, their credit limit will be increased in stages within a relatively short time frame, and their credit score will improve.
