What Does a Bad Credit Rating Actually Mean for Me?

October 29th, 2019


A credit rating or ‘credit score’ can determine whether or not you are approved for a credit card or loan. Essentially, it’s a numerical score that represents how trustworthy your reputation is as a borrower. 

Understanding your credit rating can help you when applying for finance. You can find out your credit rating through a credit agency like Equifax or Experian, who will give you a number between 0 – 1,200. The higher the score, the more credit-worthy you are. 

What’s a bad credit rating?

A bad credit rating is a score somewhere in the range of 0 and 500. This is what finance institutions define as ‘weak’ or below average. Bad credit generally describes a record of past failures to keep up with payments on your credit agreements, resulting in an inability to get approved for new credit. Your score considers:

  • How much you already owe
  • When your newest line of credit was
  • If you’ve paid your bills on time for each account on your credit report
  • If you’ve paid late, how late you were – 30 days, 60 days or 90+ days?
  • If any of your accounts have been sent to collections
  • If you have any charge offs, bankruptcies, debt settlements, foreclosures, wage garnishments, lawsuits, liens or public judgements against you
  • When your last negative event was?
  • Whether you have frequently missed payments

Another thing your credit score considers is your length of credit history. Long credit history can be helpful, so long as it’s not marred by late payments and other negative items. Short credit history is fine, as long as you’ve made your payments on time and don’t owe too much. 

The consequence of bad credit

The one key question that lenders have on their minds when they give someone money is, “Will I get it back?” With this in mind, they will examine your credit file and credit score to determine the risk involved in lending you money. 

If you have a bad credit rating or black marks on your credit file, this will raise red flags for the lender. Too many red flags or one big one and your lender may reject your loan or credit card application. 

That said, it is still possible to qualify for a personal loan if you have bad credit. Just bear in mind that your lender may charge you a higher interest rate on the money you borrow. You can also borrow as part of a short term loan, otherwise known as a payday loan

Avoiding a bad credit rating

When you first apply for credit, be it a payday loan, credit card or personal loan, you start with a clean slate. Every credit move you make from this point forward will move you towards good or bad credit. Avoiding bad credit is simply about making smart choices and managing your debt responsibly. 

To avoid a bad credit rating:

  • Pay your bills on time. Payments more than 30 days overdue can devastate your credit score. Even something as simple as a library fine can hurt if left too long!
  • Pay close attention to the bills that report to the credit bureaus such as credit cards, loans and your mortgage. Make these bills a priory and pay them first when strapped for cash. 
  • Don’t take on too much debt and keep your credit card balances low.
  • Consider each purchase carefully to determine if 1. it’s really necessary (do you really need the new iPhone?) and 2. it will impact how you pay your bills that month.
  • Limit your credit card and loan applications. Each application you make can drop you dozens of points.
  • Build healthy savings. Bank balances aren’t factored into your credit score but having money saved up can help you avoid some of the problems that lead to bad credit. Rainy day expenses are better spent on savings than with a credit card. 


Fixing your bad credit rating

The time your bad credit rating stays on your credit file varies depending on the type of listing. 

Bankruptcy – Stays on file two years from the date your bankruptcy finishes or five years from the date you were declared bankrupt.

Debt arrangements – Stay on file five years or potentially longer. Your name and details will also be entered in the NPII for five years from the date of the agreement or two years after it ends.

Defaults – Stay on file five years or seven years in the case of a clearout (when your creditor can’t contact you).

Writs, summons and court judgements – Stay on file for five years.

Late and missed payments – Stay on file for two years.

Credit enquiries and applications – Stay on file for five years, regardless of whether or not they were approved.

There’s no denying that the consequences of bad credit can be long-lasting. But fortunately, that doesn’t mean you can’t improve your credit rating. There are plenty of ways to repair your credit history and improve your chances of securing a loan, including:

  • Get a copy of your credit report and check it thoroughly
  • Fix any incorrect listings and identify areas you can improve
  • Consider debt consolidation and take control of your debt
  • Stay on track of your repayments and grow a track record of good money management
  • Refrain from making multiple credit applications that show you’re under financial stress
  • Get expert advice by calling the National Debt Hotline on 1800 007 007

The bottom line

While your credit score is important for getting credit approved at the best interest rates available, you don’t need to obsess over the scoring guidelines. The general rule is to manage your credit responsibly and your score will shine. 
Want to know more about the Nimble credit lending criteria? Get in touch or check out the answers to our FAQs.

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