Consumers who have been declined credit because of unpaid defaults, arrears, judgements or repossessions on their credit report, often approach us thinking that if they take out a new loan which they maintain in order for some time, this will in some way improve their credit standing and help them qualify for finance in the future. Unfortunately taking out a new loan and being up to date with its repayments will not improve your chances of qualifying for finance.
Bad credit takes years to erase
Each time that a bill is not paid on time or a loan goes into arrears you face a risk of having a default placed on your credit report. Once there, the default listing remains for up to 7 ears even after you catch up and make a payment in full. While your ability to borrow following this even will depend on the amount of the default as well as to how long ago the even occurred, its presence of the credit report will create restrictions on your ability to qualify for finance for years to come.
Negative credit reporting in Australia
Australian credit reporting system is one that only takes into consideration negative events. These evens are defaults, judgements, debt agreements, bankruptcy or multiple loan applications. Timely loan repayment does not get a mention on your credit report, nor do such events as the settlement of a loan. There is proposed draft legislation that may become law in the near future. If and when that occurs, our credit reporting will change and your positive credit behavior will also be reflected on the report.
However today, taking out a new loan and paying it out in full does not improve your chances of qualifying for finance. The only thing that can do that is not having any bad credit recorded on your credit report. If anything, having fewer finance applications in your history actually works in your favor.
Secured loans available sooner
Bad credit history will not preclude you from qualifying for a secured loan such as a mortgage or a car loan. It does affect your unsecured loan applications. Unfortunately borrowers with some bad credit can not qualify for an unsecured personal loan. You will need to approach non-conforming lenders for secured finance. Unfortunately bank lending criteria will exclude bad credit borrowers unless the defaults was very small and paid out in full some years ago.
Do not make multiple loan application
Making multiple loan applications can have an adverse affect on you being able to qualify for a loan with any lender. Multiple loan applications (including a check of your credit report) are reflected on the credit report and can be seen by lenders. Lenders assume that the reason you are applying so many times is that others have rejected your applications. Lenders are like insurance companies, they do not want to accept a customer who has been declined elsewhere.