How bad credit can wreak havoc on your credit file

Bad credit negatively affects your life. It can make it harder to get approved for a loan, as lenders often question your ability to repay debts. Those that will lend you money may charge higher interest rates – so you end up paying back more over the life of the loan.

But what exactly is bad credit, and how does it wreak havoc on your credit file?

What’s bad credit?

Bad credit is when you have a history of unpaid or late bills and debts. These are recorded as negative listings on your credit file alongside other financial information including:

• Debt balances
• Details of any undischarged bankruptcies or court judgements and writs
• Previous credit applications

Together, this information forms your ‘credit score’. A credit score is a numerical representation of your risk profile. The lower your score, the trickier you’ll find it to get credit.

How bad credit damages your file

According to Experian Australia, your credit score can drop by 22% if you miss just one credit card repayment. Miss three or more repayments within three months and you’re looking at a massive 42% hit to your score.

Scary, right?

However, there’s worse news. Depending on the negative listing, this damage can be long-lasting.

For example, If you fail to make a payment on a debt larger than $150 within 60 days of the due date, this is listed as a default on your file – and stays there for five years.

How to avoid bad credit

The best way to avoid the negative impacts of bad credit is by:

• Paying your debts and bills on time, every time
• Not making too many credit applications in a short amount of time
• Speaking to your credit provider to negotiate your debt if you’re experiencing financial difficulties

It can also be a good idea to check your credit report regularly. This means that you can make sure all the information on there is accurate – as sometimes black marks are listed on your file when they shouldn’t be.