What Does Bad Credit Actually Cost You Per Year in Australia?

Quick Answer: In Australia, bad credit typically costs you between $1,500 and $15,000+ per year, depending on what you're borrowing. The cost shows up as a higher interest rate on home, car and personal loans, larger deposits, and declined applications. On a $500,000 home loan, a 2–3% rate premium for impaired credit adds roughly $10,000–$15,000 in interest every year — far more than most people realise.

Bad credit doesn't send you a bill. There's no line item that says "you paid extra this year because of a default." That's exactly why it's so expensive — the cost is hidden inside every interest rate you're quoted, every deposit you're asked for, and every "computer says no" you never see the reason for.

So let's put a real number on it. Here's what bad credit costs an ordinary Australian household across a year, worked through honestly, plus the free and paid ways to stop paying it.

How much does bad credit actually cost you in Australia?

In Australia, bad credit costs most borrowers between $1,500 and $15,000+ a year, almost entirely through higher interest rates. Lenders price risk: a credit file with a default or missed payments signals higher risk, so you're offered a higher rate — or declined and pushed to a non-conforming lender that charges more again.

ASIC's MoneySmart is blunt about this: a lower credit score makes borrowing "more expensive," because lenders use your credit history to set the rate. The size of the cost depends almost entirely on how much you borrow.

Figures are illustrative worked examples, not a quote — your actual rate depends on your lender, loan size and circumstances.

Why does bad credit cost you money at all?

Bad credit costs you money because Australian lenders price every loan according to risk, and your credit file is the main risk signal they use. A default, a court judgement, or a run of missed repayments tells a lender you're statistically more likely to fall behind — so they charge more to lend to you, or decline you.

Under the Comprehensive Credit Reporting system, the three credit reporting bodies — Equifax, Experian and illion — now hold up to 24 months of your repayment history, not just the negatives. That means good and bad behaviour both show. A clean file gets you the advertised rate; an impaired file gets you the "risk-loaded" one.

The gap between those two rates is the real cost of bad credit. It's not a penalty anyone announces — it's just the difference between the rate you got and the rate you'd have got with a clean file. If you're not sure why your file is impaired, our guide on why your credit score is low breaks down the common causes.

What does a default cost you on a home loan?

A single default can cost you $10,000 or more a year on a home loan, because it can push you out of mainstream lending and into a non-conforming loan priced 2–3% higher. On a $500,000 mortgage, each extra 1% is about $5,000 a year in interest — so a 2–3% premium is roughly $10,000–$15,000 every year you hold the loan.

Over a 25–30 year mortgage, that compounds into six figures. It's the single most expensive form of bad credit in Australia, which is why a default affecting a home loan is the case where acting on it matters most. If you're in this position, our guide on getting a home loan with a default walks through your options.

What does bad credit cost on a car loan?

On a typical $35,000 car loan, bad credit costs roughly $2,100–$3,500 a year in extra interest. Subprime car lenders commonly charge 6–10% above the rates offered to borrowers with clean files, and they often add larger fees on top.

Car finance is where bad credit bites fastest, because the loan terms are short and the rate gap is wide. ASIC's MoneySmart warns that car loans marketed at people with bad credit often carry high rates and fees — many borrowers accept one because they need the vehicle for work, and pay thousands extra over three or four years without ever seeing the cheaper rate they were missing. Our overview of bad credit car loans in Australia explains how lenders assess these.

What about personal loans and credit cards?

On a $20,000 personal loan, bad credit typically adds $1,600–$2,400 a year, and on credit cards it can be even higher per dollar borrowed. Unsecured lending carries the steepest risk pricing of all, because the lender has no asset to fall back on — so an impaired file pushes the rate up most sharply here.

Credit card interest is the quiet killer: carry a balance at a risk-loaded rate and you can pay more in interest than the original purchase. If you're weighing a bad credit personal loan, the rate difference is the number to focus on, not the approval.

The costs you don't see on the loan rate

Beyond interest, bad credit costs you in deposits, rentals, insurance and utilities — costs that rarely get counted. A landlord or agent who runs a tenancy check may ask for a larger bond or decline the application; some insurers and utility providers use credit-based checks to set deposits or premiums.

These don't show up as an interest rate, so they're easy to miss, but they're real money. A declined rental application can mean months of extra renting while you wanted to buy, or a forced move. Added up, the "invisible" costs of bad credit often rival the interest costs for younger households who aren't borrowing large sums yet.

How long does bad credit keep costing you?

Bad credit keeps costing you for as long as the negative listing stays on your file — and in Australia, a default remains for 5 years from the date it was listed, under Part IIIA of the Privacy Act 1988. A court judgement also stays 5 years, repayment history information for 2 years, and a serious credit infringement for 7 years.

So the cost isn't a one-off. A default listed today can shape the rate you're offered until 2031. That's five years of paying the risk-loaded rate on everything you borrow — which is what turns a single bad month into a five-figure cost. The OAIC, which oversees credit reporting, sets these retention rules.

Can you reduce what bad credit costs you?

Yes — you reduce the cost of bad credit either by waiting out the listing, by rebuilding your file over time, or by removing a listing that was recorded incorrectly. Not every listing can be removed: a default that was correctly listed, at the right address, for the right amount, after proper notice, stays for its 5 years, and no legitimate company can change that.

Start with the free routes. You can get your credit file directly from Equifax, Experian and illion, check it against ASIC's MoneySmart guidance, and dispute an error yourself with the credit reporting body — they must investigate within 30 days. If you're dealing with debts you can't manage, the free National Debt Helpline (1800 007 007) offers independent financial counselling.

Where a listing was recorded in breach of the rules, that's where professional help earns its place. A lawyer-led service can formally dispute the listing and escalate to AFCA if a creditor won't cooperate. We've written honestly about whether paying for credit repair is worth it — it only makes sense when the saving beats the fee. If you want to know whether your listing is disputable, our default removal services page explains the grounds, and the free credit assessment tells you where you stand at no cost.

Representative example (details changed for privacy)

A Brisbane couple in their early thirties were quoted 9.1% on a $460,000 home loan because one partner had a $1,900 telco default from three years earlier. The mainstream rate at the time was closer to 6.2%. That 2.9% gap was about $13,300 a year in extra interest — roughly $1,100 a month they'd have paid purely because of one old listing.

On review, the default had been listed without the pre-listing notice the creditor was required to send. Once that was raised, the listing was removed and the couple re-applied at a standard rate. The point isn't the removal — it's the size of what the default was quietly costing them every year it stayed. Representative example; outcomes depend on individual circumstances and results may vary.

Frequently Asked Questions

How much does bad credit cost you per year in Australia? In Australia, bad credit typically costs $1,500 to $15,000+ a year, almost all of it through higher interest rates. The exact figure depends on how much you borrow: a few thousand a year on car and personal loans, and $10,000+ a year on a large home loan where even a 1% rate premium is about $5,000 annually.

Does bad credit really affect the interest rate I'm offered? Yes — your credit file is the main risk signal Australian lenders use to set your rate, so an impaired file means a higher rate or a decline. ASIC's MoneySmart confirms a lower credit score makes borrowing more expensive. The difference between the rate you're offered and the clean-file rate is the real cost of bad credit.

How much does a default cost on a home loan? A default can cost $10,000–$15,000 a year on a $500,000 home loan, because it can push you into a non-conforming loan priced 2–3% above mainstream rates. Each 1% on a $500,000 loan is roughly $5,000 a year, and the cost continues for as long as the default affects your borrowing.

How long does a default stay on my credit file in Australia? A default stays on your credit file for 5 years from the date it was listed, under Part IIIA of the Privacy Act 1988. A court judgement also stays 5 years, repayment history information 2 years, and a serious credit infringement 7 years. The cost of the listing continues for that whole period.

Can I reduce the cost of bad credit without paying anyone? Yes — you can get your credit file free from Equifax, Experian and illion, dispute any error yourself with the credit reporting body (they must investigate within 30 days), and rebuild your file over time with consistent repayments. The free National Debt Helpline (1800 007 007) offers independent financial counselling if debt is the underlying issue.

Is it cheaper to fix my credit or live with it? It depends on what you're borrowing and whether your listing is removable. If bad credit is costing you $10,000 a year on a home loan and a listing was recorded incorrectly, removing it can pay for itself quickly. If you're not borrowing soon and the listing was correctly recorded, waiting out its 5-year period may cost you little.

Does bad credit cost me money even if I'm not taking out a loan? Yes — bad credit can cost you through larger rental bonds, declined tenancy applications, and credit-based deposits on some insurance and utility accounts. These costs don't appear as an interest rate, so they're easy to miss, but for households not yet borrowing large sums they often add up to as much as the interest costs.

Can Australian Credit Solutions remove any default to lower my costs? No — Australian Credit Solutions can only dispute listings that were recorded in breach of the rules, such as a default listed without the required notice or at the wrong address. A correctly recorded default stays for its 5 years. Our free assessment tells you honestly whether your listing has grounds for removal before you pay anything.

What is the most expensive type of bad credit? A default affecting a home loan is the most expensive type of bad credit in Australia, because home loans are large and long. A 2–3% rate premium on a $500,000 mortgage is $10,000–$15,000 a year, compounding into six figures over the life of the loan — far more than the cost on car, personal or credit-card debt.

The first step is knowing your number

The cost of bad credit is invisible until you measure it — and for most people it's larger than they expect. The honest next step is to find out exactly what's on your file, whether any listing is disputable, and what removing it would realistically save you. That's what the assessment does, at no cost.

Australian Credit Solutions — ASIC-licensed (ACL 532003), lawyer-led by Principal Solicitor Elisa Rothschild BA/LLB, flexible payment plans from $150/fortnight, 98% success rate on accepted cases, Award Winner 2022–2024.

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Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute legal or financial advice.

Related reading: Is It Worth Paying Someone to Fix Your Credit? → | Why Is My Credit Score Low? → | Can I Get a Home Loan With a Default? →