A bad credit rating doesn’t happen overnight—but once it’s there, it can affect everything from your ability to secure a personal loan to getting approved for a rental property. The good news? Most credit issues can be prevented with a little awareness and consistent financial habits. Whether you’re rebuilding your score or trying to avoid missteps, understanding the most common causes of bad credit is the first step.
For anyone trying to repair their finances, tools such as a bad credit score credit card can help you demonstrate responsible repayment behaviour while regaining control over your credit profile.
Below, we break down the most frequent causes of bad credit—along with practical strategies to avoid them.
Table of Contents
Late or Missed Payments
Payment history is the single biggest factor affecting your credit score. Missing payments on credit cards, loans, utility bills, or buy-now-pay-later arrangements can significantly reduce your score and stay on your credit report for years.
How to avoid it
- Set up automatic payments for all recurring bills.
- If cash flow is tight, contact the provider early and ask about payment plans.
- Use calendar reminders to stay on top of due dates.
High Credit Card Balances
Maxing out credit cards or consistently carrying high balances signals to lenders that you may be struggling to manage your finances. Even if you pay on time, high utilisation can drag your score down.
How to avoid it
- Keep credit utilisation below 30% of your limit.
- Make fortnightly repayments instead of waiting for the monthly bill.
- Increase your limit only if you’re confident you won’t overspend.
Applying for Too Many Loans or Credit Products
Each time you apply for credit, a “hard enquiry” is recorded on your report. Too many enquiries within a short period makes lenders cautious and may temporarily lower your score.
How to avoid it
- Compare lenders without submitting multiple applications at once.
- Use pre-qualification tools where possible.
- Only apply for credit when you genuinely need it.
Defaults and Unpaid Accounts
When bills go unpaid for 60 days or more, the creditor may list a default on your credit report. Defaults can stay on your file for up to five years and make new credit approvals more challenging.
How to avoid it
- Don’t ignore overdue notices—contact the provider promptly.
- Ask about hardship programs if you’re struggling.
- Prioritise essential bills such as utilities and rent.
Bankruptcy and Debt Agreements
Declaring bankruptcy or entering into a debt agreement has a severe impact on your credit score. These situations are often the result of unmanageable debt and can limit your financial options for many years.
How to avoid it
- Seek financial counselling early if debts become overwhelming.
- Consider negotiating with creditors instead of entering formal insolvency.
- Build an emergency fund to reduce reliance on credit during tough periods.
Not Checking Your Credit Report Regularly
Many Australians don’t realise errors on their credit file can harm their score. Incorrect information, identity theft, or outdated listings can all drag your score down without you knowing.
How to avoid it
- Check your credit report at least once a year—it’s free.
- Dispute any inaccuracies immediately with the credit reporting body.
- Use monitoring services if you’re concerned about identity theft.
Closing Old Credit Accounts Too Quickly
It might feel smart to close old accounts, but doing so can shorten your credit history and reduce your available credit—both of which can negatively impact your score.
How to avoid it
- Keep older accounts open if they’re not costing you fees.
- Close only unnecessary or fee-heavy accounts.
- Maintain consistent, responsible use across all open credit lines.
Building and maintaining a healthy credit score takes time, consistency, and a proactive approach to your finances
By understanding what causes bad credit—and taking simple steps to avoid these pitfalls—you can strengthen your financial position and unlock better opportunities in the future. Whether you’re trying to rebuild your credit or simply want to stay on the right path, focusing on good habits today will pay off for years to come.
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