Are you always maxing out your credit card? Do you let your bills pile up? It can be easy to do but unfortunately this activity can have a detrimental effect on your credit report. A poor credit rating might not seem like a big deal, but lenders will view any negative listings on your credit report as a red flag. The side effects of having bad credit can be hard to deal with.
Unsure what your score is? You can check it for free here. If you’re yet to rein in your spending, it’s important to consider the implications this may have on your future.
Check out some of the major challenges people with bad credit face.
Credit card application rejection
One of the first side effects of having bad credit, is the lack of ability to apply for a credit card. Put simple, its way harder to qualify for a credit card in Australia if you have bad credit. Before giving you access to funds, lenders want to know you’ll be able to pay them back. If you have a low credit score or defaults on your credit report, this suggests that you’re riskier to lend to.
If you want to apply for a credit card, you’ll need to spend time improving your credit rating first. In the meantime, you’ll need to stick to a debit card. This way you’ll be spending your own money, rather than funds from a credit provider.
A higher interest rate on your personal loan
You can still qualify for a personal loan with a poor credit rating, but it might cost you more. Some lenders specialise in lending to people with a less-than-perfect credit history. Yet they’ll often charge you a higher rate of interest on the money you borrow.
If you do decide to take out a personal loan, make sure you can afford your repayments and always go through a reputable lender.
Difficulty getting approved for a rental property
If you apply for a rental property, landlords can request a copy of your credit report. This will help them determine your ability to meet your rental payments as a tenant.
Landlords are only allowed to access a portion of your file, referred to as public record information. This section will list any previous court rulings, bankruptcy filings or debt. If any of these appear on your file, you may find your application for tenancy gets knocked back.
You may need to stick to a prepaid phone plan
Most telco providers require you to do a credit check before signing up to a postpaid plan. This type of plan offers service a month in advance, and may also include a phone (which you can pay off over a set period of time). Your telco provider therefore wants to ensure you’ll be able to pay it back.
If you have bad credit and can’t get approved, your best option is to stick with a prepaid plan. Luckily, there are scores of prepaid plans on the market that provide excellent value.
Quick tips for boosting bad credit
It’s easy to become disheartened if your credit score isn’t quite up to scratch. But the good news is that this number is never permanent. You can improve your score over time by making changes to the way you manage your money. Here are some suggestions:
- Get on a payment plan for debt. Most lenders offer flexible payment options if you’re falling behind on repayments. This can prevent debt from spiralling even further.
- Check your credit score before applying for more credit. Making multiple credit enquiries can reduce your score. If you’re already sitting at the lower end of the scale, it’s worth holding off until it has improved.
- Set up automatic payments. This is the easiest way to prevent missed or forgotten payments. Set them up yourself online or speak to your bank.
- Lower your credit limits. Haven’t reached your credit card limit yet? Contact your lender and request for it to be lowered if possible.