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If you’ve recently had a loan application or a credit card application rejected, it might be because you have a bad credit score.

There are a lot of ways that you can find yourself with a bad credit score but it’s important to remember that you can always work to improve it.

What is a bad credit score?

Credit scores in Australia are calculated based on information in your credit file and they consider anything that can indicate how you manage debt. They’re generally a number between 0 and 1000. Lenders use them as a risk guide when lending money.

The closer your score is to 1000, the better. Anything under 500 is below average and lower than 400 can make it much harder to get a loan.

Credit scores are usually made up of any information about your ability to manage debt and pay it back. While they take a lot of different information to calculate, some areas are a little easier for you to track.

It can be frustrating to find out that your credit score is low, particularly if you don’t know why. If you’re wondering why you have a bad credit score, it might be one of these:

No credit history

Your credit score is made up of information in your credit file. If that file is empty, lenders have no way to tell whether you will be able to manage debt. If you have not had any credit accounts in the past then you can find yourself with a bad credit score

Having some sort of credit history can be useful. If you can get a credit card and know that you can repay it every month, this can help. Other things like regularly paying mobile phone plans on time can give you a positive credit score, you just need to make sure the bill is in your name.

Too many credit cards

One of the most common things that can ruin a credit score is having too many accounts open. Owning several credit cards may be useful, but to a potential lender they are a red flag.

Both the number of credit cards (or other type of unsecured loan) and the available limit can work against you. Closing an account or two or speaking to your provider to reduce your credit limit can lead to an improvement in your credit score.

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Too many enquiries

Whenever you apply for a loan, lenders can check your credit score. This is logged in your file as a ‘hard enquiry’. Just like having credit accounts, most people will have hard enquiries in their files. They can be made when applying for loans or credit cards.

While having hard enquiries is normal, the problem can come from having too many or too many too close together. Just like having too many credit accounts, having too many hard enquiries can be treated as a sign that you are not managing debt and your credit score lowers accordingly.

It’s worth noting that there is another type of inquiry that doesn’t affect your credit score. Soft enquiries are made when you (or someone you have authorised) check your credit score. They aren’t tied to an application for credit and won’t change your score.

Payday loans

Lenders also pay attention to the type of loans you apply for and some can have a greater impact on your credit score. Applying for a loan from a payday lender can carry more risks than a loan from a bank and this can be reflected in your credit score.

While payday loans can be easier and help you out with small short-term money, they can be a risk to your credit score so make sure to consider your options before you commit to one.

Bad repayment history

Making repayments late or missing them entirely can be another reason for a bad credit score. Every time a repayment is not made on time, it’s recorded in your file. Whether it’s because of financial hardship or simply forgotten, it’s another mark that can indicate risk for any lenders.

Luckily, it’s also one of the easiest ways that you can improve your credit score. Setting up automatic payments or creating a budget plan to ensure that your payments are made on time can raise your credit score and set you on the right path.

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Defaulting on loans

If taken to the extreme, missed repayments can end in a loan defaulting, which can expose you to legal claims and impact your future. Lenders look for risk and having defaulted on a loan in the past can be a major red flag.

Marks in your credit score generally only affect you for a relatively small time frame. Missed payments and hard enquiries will stay on your credit score for two years but defaulting on a loan can stay for five years and can take a larger toll on your credit score.

Court judgements

Court judgements are another hefty penalty for your credit score. Like defaulting, any court judgements against you stay in your credit file for five years. They also involve repayment and if you are late or miss any payments from the ruling, your score can suffer even more.

If you have a court ruling against you, make sure to make your payment as soon as you can to avoid any negative marks against your score.


Likewise, filing for bankruptcy leaves a mark on your credit score: for either five years or two years after the bankruptcy ends, whichever one is later. If you find yourself declaring bankruptcy, make sure to complete the Bankruptcy Act action as soon as you can if you want your credit score to improve more quickly.

If you’re unsure as to how your credit file may appear to lenders, speak to a Lending Specialist at Ume Loans today.