Having a bad credit history is never good – but it doesn’t mean you can’t successfully apply for personal loans in the future.

You may find it harder to be approved for a personal loan with bad credit than someone with a better credit history. You may also have to pay a higher interest rate or higher fees for a bad credit personal loan.

It may be worth taking time to boost your credit score and improve your credit history. This may help to improve your chances of loan approval in the future. 

What does ‘bad credit’ mean?

Credit reporting agencies in Australia compile your credit history into a report which lenders look at when deciding whether to approve you for a loan. The report includes a credit score: a number based on your credit history and demographic information (such as your age and where you live). The higher your score, the better your credit rating is.

Although each agency has its own scoring system, a credit score over 750 is generally considered excellent, between 700 and 749 is good; 580 to 669 is fair. A credit score below 580 falls in the bad credit range.

Banks and other lenders tend to be wary of applicants with a bad credit score. They are less likely to approve these borrowers for a loan, as there is an increased probability of falling behind on repayments.

How do I find out if I have bad credit?

If you want to know your credit score, you can check your credit score via RateCity at  www.ratecity.com.au/credit-score.

This tool is powered by Get Credit Score, whose scores range from 0 and 1200 and are broadly ranked as follows:

• 833 to 1,200 = Excellent
• 726 to 832 = Very good
• 622 to 725 = Good
• 510 to 621 = Average
• 509 or less = Below average

How did I get a bad credit score?

Negative events in your credit history can lead to a bad credit score, including but not limited to:

• Missing/defaulting on loan repayments (including credit cards)
• Going bankrupt
• Having credit applications denied
• Having too many credit checks conducted over a short period of time (most lenders will conduct a credit check each time you apply for credit)

How can I improve my credit score?

In the past, credit scores were calculated using only negative credit events. However, the introduction of Comprehensive Credit Reporting (CCR) means that maintaining a positive credit history may help you repair a bad credit score over time.

Positive credit events that may help improve your credit score include (but aren’t limited to):

• Keeping up with your loan repayments
• Fully repaying loans
• Keeping the size of your debts manageable

Can I get a personal loan with bad credit?

It’s not as easy to get a personal loan with bad credit as it is to get a personal loan with good or excellent credit, especially if you’re only looking at personal loans from the major banks. However, it is still possible. Some lenders specialise in providing personal loans for borrowers with bad credit histories.

Bad credit personal loans are more likely to have higher interest rates and fees than typical personal loans. Bad credit borrowers may also need to provide additional security to guarantee a bad credit personal loan, such as the value of their car, or equity in their home.

Keep in mind…

1. Bad credit personal loans come with a higher interest rate than regular personal loans, so make sure you do your research to find the most competitive rate on the market.
2. Each lender has its own policy, but generally you’ll find it hard to get approved for a bad credit personal loan above $50,000.
3. While the lender may be sympathetic to your circumstances, they usually have a stringent application process to ensure you can handle the repayments.

Consider your chance of getting approved

Did you know every time you for a credit card or a loan, a lender will check your credit report, leaving a mark on your credit file? Worse still, if you get rejected it could negatively impact your credit score and show up on your credit history for up to 12 months.

To increase your chances of a loan approval, stick to the following checklist:

• Check your credit history for areas of improvement and raise any issues before the bank asks, explaining what happened and why it won’t happen again.
• Reduce credit card debt and your credit card limit if it is high.
• Save consistently for three to six months before applying for a loan.
• Boost your savings – lenders want to see you have enough saved up to meet loan repayments
• Show evidence that you have been sticking to a budget.

Steps to get a personal loan with bad credit

1. Check your credit score for free – this can help you get a better idea of what personal loan options you may be eligible for
2. Gather your documents – your personal loan application may require you to show proof of identity and residence, as well as details of your current income and liabilities (e.g. credit cards, other loans you have owing), as well as details of any security that may be required
3. Compare personal loans – consider using a personal loans calculator to estimate the loan size, term length and interest rate you can afford
4. Contact the lender – before you fill out any application forms, try to get in touch with the lender to find out if they lend to borrowers with bad credit
5. Make your application – fill out the required forms, providing all the necessary information

Are there bad credit personal loans with no credit checks?

Some small loan providers, including payday lenders, offer quick loans with no credit checks, which may help avoid worsening a bad credit score. However, this does not mean your personal loan has guaranteed approval.

Under Australian law, responsible lenders must:

• Make reasonable inquiries about your financial situation, requirements and objectives
• Take reasonable steps to verify your financial situation
• Decide whether the credit contract you are asking for is 'not unsuitable' for you

Even if a loan has no credit checks, the lender will still need to assess your application based on your current ability to repay the loan. For example, some lenders will decline loan applications to borrowers whose income comes mainly from Centrelink benefits, and/or borrowers who already have outstanding loans owing.

Can I get a payday loan with bad credit?

Payday loans (for amounts up to $2000) and medium amount loans (for amounts from $2001 to $5000) may be an option for selected bad credit borrowers. It’s important to compare your options and calculate whether you can afford a payday loan’s repayments before making your application, as payday loans often have very high interest rates and fees.

It’s often best to only take out payday loans to manage financial emergencies, and then only if you’re very confident you can afford the repayments.

Can I use a bad credit personal loan for debt consolidation?

If you are struggling to repay multiple debts, such as personal loans, car loans and credit cards, one option may be to combine these into one by using a debt consolidation personal loan. Rather than making multiple repayments each month, and being charged interest on each debt separately, you’ll just need to make the one repayment on the personal loan instead. Not only can this help to simplify your household budgeting, but because you’ll only be charged interest once, you may pay less from month to month than managing your smaller debts separately.

Before you apply for a debt consolidation personal loan, calculate whether you’ll be able to afford the new loan’s repayments, and how much you’ll be paying in total over the loan’s full term. The longer your loan term, the more payments you’ll need to make, and the more times you’ll be charged interest on what you owe – this could end up costing you more in total than clearing your debts separately, even if you’re paying a lower interest rate.

If you have bad credit, you may find it more difficult to successfully apply for a bad credit personal loan for debt consolidation. When you’re comparing debt consolidation personal loans, be sure to check the terms and conditions involved, such as any limits on the size or type of debt that can be consolidated, or any income restrictions the lender may have.

It’s also important to remember that once you’ve consolidated your existing debts, you should avoid borrowing more money if possible. For example, once you’ve transferred the outstanding debt from your credit cards to a personal loan, going on a fresh credit card spending spree and building up all-new debt could risk putting you in serious financial trouble.

Where can I get more help?

If you have bad credit, are having trouble applying for personal loans with bad credit, and find yourself in a difficult financial situation, help is available. Free financial counselling is available, and you can also call the national debt hotline on 1800 007 007.

Looking for other loan options with bad credit? Check out our bad credit hub for advice on how to get other financial products with bad credit including home loans, car loans and credit cards.