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Bad Credit

Navigating the complexities of bad credit can be overwhelming, but it’s a challenge that can be overcome. It’s important to understand the root causes of bad credit and work out how to implement effective strategies for financial recovery. Whether you’re dealing with debt consolidation, budgeting, or finding the right financial products, our focus is on empowering you to build a brighter financial future. With the right tools and knowledge, what may seem like obstacles can become stepping stones to growth.

What Is Bad Credit?

Bad credit is a term used to describe a poor credit history, which can be a result of various financial missteps such as late payments, defaults, or even bankruptcy. In Australia, credit reporting agencies collect this information to create your credit report, which is then used to calculate your credit score. A low credit score can make it difficult to secure loans, credit cards, or even rental agreements.

Credit Report

Once your financial information is gathered by credit reporting agencies, it is compiled into a document known as your credit report. This report is essentially a detailed financial profile that includes your credit history, payment behaviours, and any financial missteps like late payments or defaults. In Australia, this report is crucial because it is used to calculate your credit score, which is a numerical value ranging from 0 to 1,200. The score serves as a quick reference for lenders and creditors to assess your creditworthiness.

High Credit Score

A high credit score not only signifies financial responsibility but also offers tangible benefits. It enhances your attractiveness to lenders, potentially leading to easier loan approvals and better terms, such as lower interest rates and higher credit limits. Some lenders even have special offers for high-score applicants. Ultimately, a strong credit score can significantly reduce your borrowing costs and contribute to your overall financial stability.

Low Credit Score

A low credit score can be a result of a poor credit history and can serve as a warning sign for potential lenders. This could make it more difficult for you to secure loans or other forms of credit, and if you do manage to get approved, you’re likely to face higher interest rates. Therefore, understanding the components and implications of your credit report and score is essential for managing your financial health in Australia.

How Does Bad Credit Occur?

Understanding the factors that contribute to bad credit is the first step in taking control of your finances. Here’s a closer look at some of the key elements that can negatively impact your credit score:

Late Payments: One of the most common ways bad credit occurs is through late payments. When you fail to pay your bills, loans, or credit cards on time, this information is reported to credit agencies. A late payment can stay on your credit report for up to two years, affecting your credit score and making you less attractive to future lenders.

Defaults: Defaults are more severe than late payments and occur when you fail to pay a loan or credit card debt entirely. A default is recorded on your credit report after multiple missed payments and can remain there for five years. This significantly impacts your ability to secure credit and may result in legal action from the lender.

Bankruptcy: Bankruptcy is a legal status that provides relief from debt but comes at the cost of severely impacting your credit. In Australia, bankruptcy is governed by the Bankruptcy Act 1966 and can stay on your credit report for up to seven years, or even longer in some cases. It’s a last-resort option that should be considered carefully due to its long-lasting effects on your financial standing.

High Credit Utilisation: High credit utilisation refers to using a large percentage of your available credit. For example, if you have a credit card with a $10,000 limit and you’ve used $9,000, your credit utilisation rate is 90%. High utilisation is seen as a risk factor by lenders, as it suggests you may be reliant on credit to manage your finances. Keeping your credit utilisation low can help prevent a drop in your credit score.

Risks And Drawbacks

Limited Access To Credit

Having a poor credit history can make lenders wary of extending new credit to you. Whether it’s a personal loan, a car loan, or a new credit card, lenders may see you as a high-risk borrower. This can severely limit your options when you need financial assistance, making it challenging to cover unexpected expenses or make significant purchases.

Higher Interest Rates

Even if a lender does approve you for credit, the terms are often less favourable than those offered to individuals with good credit. One of the most significant drawbacks is higher interest rates. Over time, these higher rates can add up, making the cost of borrowing substantially more expensive and further exacerbating financial strain.

Employment Challenges

In some industries, particularly finance and government, employers may conduct credit checks as part of their hiring process. A poor credit history could be viewed as a lack of financial responsibility, potentially affecting your chances of landing the job. This can create a cycle where poor credit keeps you from opportunities that could otherwise improve your financial situation.

Renting Difficulty

A bad credit score isn’t just a hurdle when borrowing money; it can also affect your living situation. Many landlords conduct credit checks as part of the rental application process. Poor credit may make it difficult to secure a rental, forcing you to look for less desirable housing options or to rely on co-signers.

Potential Benefits

While bad credit is generally disadvantageous, it can serve as a wake-up call to review and improve your financial habits.

Financial Awareness

Having bad credit can be a wake-up call that prompts you to take a closer look at your financial habits and overall situation. This newfound awareness can be the catalyst for making positive changes, such as setting up an emergency fund, tracking your spending, and understanding the nuances of interest rates and loan terms.

Debt Review

Bad credit often stems from unmanageable debt, making it an opportune time to review all your outstanding obligations. This review can lead to debt consolidation options, where multiple debts are combined into a single, more manageable payment plan with potentially lower interest rates.

Budgeting

One of the silver linings of having bad credit is that it can force you into the habit of budgeting. Creating a budget helps you understand your income and expenditure better, allowing you to allocate funds to essential expenses and debt repayment. Sticking to a budget can be a crucial step in improving your financial health and, eventually, your credit score.

Did You Know?

A score above 800 is generally considered ‘excellent,’ while a score below 500 is viewed as ‘below average’ and could significantly impact your financial options.

Potential Alternatives

Before you resign yourself to the long-term consequences of bad credit, it’s worth exploring some alternatives that could help you regain financial stability.

Debt Agreements

Also known as Part IX (9) Debt Agreements, these are legally binding agreements between you and your creditors. Under a debt agreement, you propose to settle your debts by paying a reduced amount over a set period. This can be a viable option if you have a steady income but are unable to pay the full debt amount.

Personal Insolvency Agreements

Known as Part X (10), Personal Insolvency Agreements are a more formal option than debt agreements and involve legal proceedings. Under this arrangement, you work with a trustee to propose a way to settle your debts, which could include selling assets or making lump-sum or installment payments. Your creditors then vote on whether to accept the proposal.

Personal Insolvency Agreements

Known as Part X (10), Personal Insolvency Agreements are a more formal option than debt agreements and involve legal proceedings. Under this arrangement, you work with a trustee to propose a way to settle your debts, which could include selling assets or making lump-sum or installment payments. Your creditors then vote on whether to accept the proposal.

Each of these alternatives has its own set of pros and cons, and it’s crucial to consult with financial advisors to determine which is most suitable for your situation.

Strategies For Improving Your Credit

Pay Bills On Time

Making timely payments on utility bills, rent, and other recurring expenses is crucial for maintaining a good credit score. In Australia, some utility companies and landlords report payment histories to credit bureaus. By consistently paying these bills on time, you can positively impact your credit history. This not only shows that you are financially responsible but also builds a track record that future creditors can rely on when assessing your creditworthiness.

Keep Unused Accounts Open

The length of your credit history plays a significant role in calculating your credit score. In Australia, older accounts contribute positively to your credit history, as they provide a longer timeframe for creditors to evaluate your spending habits and payment behaviour. Therefore, keeping old or unused accounts open can be beneficial. It extends the average age of your credit accounts and can improve your credit score. However, make sure that these accounts don’t have high fees that could outweigh the benefits of keeping them open.

Debt Consolidation

Debt consolidation involves taking out a new loan to pay off multiple debts, such as credit cards, personal loans, or other types of credit. By consolidating your debts into a single loan with a potentially lower interest rate, you can simplify your monthly payments and possibly save money in the long run. However, it’s essential to carefully review the terms of the new loan to ensure it truly offers a financial advantage.

Budgeting And Financial Planning

Budgeting is a cornerstone of financial health. By creating a realistic budget that accounts for all your income and expenses, you can better understand how much money you have available to meet your financial obligations. This can help you avoid missed payments, which are detrimental to your credit score.

Understanding Credit Reports

Your credit report is a detailed record of your credit history, and it’s crucial to understand what it contains. Reviewing your credit report allows you to spot any errors or inaccuracies that could negatively impact your credit score. In Australia, you’re entitled to request a free copy of your credit report once a year from each of the major credit reporting agencies. Disputing and correcting any inaccuracies can be a vital step in improving your credit.

Sourcing Help With What
Affects Your Credit Score

If you are ready to “level up” and get financially fit, then it’s never too early to seek professional financial advice. Whether your next goal is to retire early, take a gap year or purchase a home, George Samios and the team at Madd Life are ready and waiting. 

With their entire business built on referrals, the team at Madd Loans have taken the mortgage broking industry by storm. Their overwhelmingly positive feedback has helped them to take out numerous industry awards, including the title of “Queensland’s Broker Of The Year” for four consecutive years. However, after working with a broad variety of clients in regards to their mortgage options, it made sense for the team at Madd to have the capacity to offer a full financial planning service.

If thinking about your financial future and tackling your credit score strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality. 

How to Know if my Credit Rating is Good?

What Affects Your Credit Score?

Before you jump at “buy now, pay later” apps like Afterpay and ZipPay, do you know what affects your credit score vs what doesn’t? 

Your credit score (or your credit rating) will generally range from 0 to either 1000 or 1200, depending on the credit bureau calculating it. 

Credit scoring weighs up multiple factors linked to your financial history, such as the types of loans you have applied for or have paid off, the total debt to your name, and an in depth look at your repayment history covering everything from phone bills to mortgages. However, when it comes to knowing what affects your credit score, there are some surprisingly good and bad factors to think about in order to present yourself as financially fit. 

Six Factors That Can Negatively Affect Your Credit Score

Having a good credit score is crucial if you want to obtain the right pre-approvals for big purchases later in life, such as a car loan or a mortgage. In some scenarios, it can also allow you to access more favourable loan terms and interest repayments – so what do you need to keep an eye out for in order to stay in the best possible position? 

Late Repayments

The concept of a “late repayment” may vary greatly between yourself and your lending provider. Even if you are as little as fourteen days behind on paying your phone bill, this can be lodged on your credit file – and take years to remove. 

Too Many Credit Applications

If you shop around for credit and apply to multiple credit providers within a short timeframe, this can lower your credit score as an enquiry is added to your report each time you apply – flagging you as a risk for potential providers. 

Missed BNPL Payments

 Interest free, “buy now pay later” platforms like Afterpay are seen as an ongoing line of credit, or debts that you could potentially have. While this can impact obtaining future credit, missed payments will also be lodged as a red mark on your credit file. 

Payday Loans

When calculating your credit score, credit reporting bodies generally look at the type of providers you have applied for credit with. Payday loans usually come with massive interest fees attached, and indicates that you may not be financially stable. 

Incorrect Contact Details

While your current address may not seem like a factor when it comes to what affects your credit score, having incorrect details listed greatly increases your chance of a miscommunication when it comes to staying on top of any repayment obligations. 

Not Checking Your Credit File

Unfortunately many Aussies only tackle their credit file once it’s too late – meaning that they’ve been declined for a loan, and they’re trying to understand why. Check your credit file regularly to spot any potential red flags and avoid future pain. 

Understanding The Role
Of A Mortgage Broker

For native Queenslanders or those who would like to be, finding the right Brisbane mortgage broker is crucial for successfully navigating the world of finance.

In Australia, almost three quarters of new residential home loans are now written by mortgage brokers. While this figure is substantially higher than it once was, considering that mortgage brokers have access to a wide pool of financial products and offer unbiased guidance, it makes sense that more people are choosing to use one.

Regardless of whether you’re a seasoned investor, first home buyer or are simply looking to refinance, it’s no secret that home loans have the potential to be stressful. From finding the best possible interest rate to presenting your application, dealing directly with a lending institute can be intimidating if you’re not confident in how the process works. The alternative? Partnering with a Brisbane mortgage broker.

In simple terms, the role of a mortgage broker is to act as an intermediary, or someone who navigates home loan products and their applicable terms on behalf of individuals or businesses. They serve as the ‘middleman’ between the lender and the borrower and handle the time-consuming process of securing the loan and gathering the considerable paperwork involved.

The end goal is to act in your best interests when finding a home loan product and negotiating the terms on your behalf.  

Once they have enough information to paint an accurate picture, a mortgage broker will calculate what an applicant can afford to borrow, source home loan products that suit the individual’s situation, and present the applicant with financial products that best match their position.

A good mortgage broker will then go on to explain how each home loan works, and what the relevant costs are such as fees and interest rates. Once the applicant decides on a home loan, the mortgage broker will then package their application in a manner that positions them in the best possible light to a lending institute, and will ultimately guide the applicant through the entire settlement process.

Although not applicable in every circumstance, it’s not uncommon for a client to stick with their mortgage broker for future financial assistance if they have received high quality customer service, and were happy with their outcome. Examples of this include returning to the same mortgage broker for assistance with refinancing, obtaining a personal or car loan, and even options to purchase an investment property. In some instances, reputable mortgage brokers also report receiving second and third generation customers based on referrals.

We find the loan for your best interests

Why Use A Local Brisbane Mortgage Broker

Regardless of your financial situation or what your property end goal looks like, almost everyone can benefit from using a mortgage broker. For Queenslanders trying to navigate an extremely competitive property market, partnering with a local Brisbane mortgage broker who knows the area can also be a tool to provide additional insights as well. In fact, just a handful of the benefits of using a mortgage broker include the following.

Home Loan Product Experts

While banks offer many products and services, home loans are the speciality of mortgage brokers. Arguably, the superpower of a mortgage broker is their ability to turn the complexities of a lender’s policies into black and white information, which can be invaluable when it comes to making decisions about your financial future.

The Leg Work Gets Sorted

Did you know that Australia has over forty different lending providers? Your mortgage broker certainly does, along with the ins and outs of almost every one. A mortgage broker provides you with one point of contact and can save borrowers countless amounts of both time and money.

Increased Flexibility

Trying to juggle work, social and home life around bank appointments has the potential to add extra stress to a home loan application. Mortgage brokers are all too aware of this, and instead apply a level of flexibility when it comes to ensuring that they’re on call and available for their clients, even if that means outside of business hours.

They’re On Your Team

When going to a bank for your mortgage solutions, it’s important to remember that the person you’re dealing with is only able to present the bank’s own individual loan products. In comparison, it’s quite the opposite for a mortgage broker, as it’s you that takes centre stage on their priority list and can offer a wider variety of options.

Transparent Communication

Applying for a home loan can be a stressful experience if you don’t understand the technical terms being thrown around, or you feel like you’re not being told the entire truth. Working with a mortgage broker means that you have a partner to help you navigate this world, and will be the first to tell you if a certain product isn’t the ideal fit for you.

In addition, a local Brisbane mortgage broker will also have connections with other real estate professionals such as conveyancers and building and pest inspectors, which can help make life easier for the applicant.

This is often a wildly different approach to what consumers can expect from a bank, and the added convenience of only having to submit one set of documents also helps to push mortgage brokers as the ideal choice between the two.

Meet Your Local

Brisbane Mortgage Broker

Navigating the world of home loans isn’t easy, especially if you aren’t sure whether doctors for home loans are the right choice for you. Thankfully, partnering with a mortgage expert means that you have someone on your team to guide you through the process.

Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing 3,000 Australians with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.

If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Regardless of whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.

Meet Your Local

Brisbane
Mortgage Broker

Navigating the world of home loans isn’t easy, especially if you aren’t sure whether doctors for home loans are the right choice for you. Thankfully, partnering with a mortgage expert means that you have someone on your team to guide you through the process.

Since their inception in 2012, the team at Madd Loans have worked tirelessly in providing 3,000 Australians with finance options to help turn their dreams into reality. With the entire brand being built on referrals, owner George Samios takes great pride in making the loan process both fun, educational and stress free – and he has a swag of awards to prove it.

If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Regardless of whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.

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