There are so many new experiences for 18 year olds when they come of age. Leaving school, perhaps entering the workforce, earning a full-time income, driving and voting. Another is being able to borrow money, but it’s important young adults are aware there is a potentially dark side of obtaining credit.

What may start as simply applying for one credit card can quickly escalate into a few. Then it’s purchasing a car, furniture and electrical goods before the pinch starts to settle in, causing a real struggle to make all of the agreed repayments.

Unfortunately many try to take out more credit to help pay off their mounting debts. Sadly this can lead to defaults, debt collectors, bankruptcy or court actions listed against them, which consequently can prevent them from borrowing at a later stage. So to all the school leavers and young adults out there…please take heed of these five very important credit tips.

1. When you borrow money you’ll start a credit file for life

This file can be looked at by anyone considering lending to you. On your file it shows all of your credit history over the past 5-7 years and records things such as whom you have borrowed from and if you have been late with payments. You can’t run away from it – it can be accessed from anywhere in Australia. If you have been bad at repaying a loan then don’t expect the next lender you want to borrow from to be very happy to approve you more money.

2. Being late on payments can give you a bad credit rating

If you are more than 60 days late at paying a due account (such as mobile phones, credit cards, car loans, store cards and mortgages) then the lender is allowed to make note of this on your credit file. These are listed as “defaults” and any default will affect your credit rating.

3. Too many lending enquiries can give you a bad credit rating

When trying to borrow money, many young people make the mistake of putting in applications anywhere and everywhere. This means there will be a lot of credit enquiries listed on your credit report within a very short space of time. This can give you a negative credit rating also; so whatever you do, don’t apply to lots of lenders, do your research and try to only apply once.

4. A bad credit rating can stop you from getting a mainstream loan for five years

Mainstream banks and credit providers generally will not lend to you if you have a bad credit rating. If this happens, you may need to apply with a specialised lender who may consider lending to you but at a higher rate, as you are perceived as being a higher risk. When you have defaults listed on your credit report, they’ll stay on your report for 5 years. Young people must understand that any payment mistakes you make now could ruin your future financial plans over the next 5 years.

5. Your credit file is entirely your responsibility

You can get an annual free copy of your credit report at any time, so get into the habit of checking it at least once a year. Mistakes can be made so you need to make sure it is accurate. Remember your identity is precious and there are also a lot of crooks out there who want to get their hands on peoples personal information so they can illegally open accounts and leave innocent people with unknown debts. Also, make sure you always notify any change of address to anyone you owe money to, because if they can’t find you, they can definitely still access your credit report and list defaults against you.

So young adults of Australia, welcome to the world of adulthood! It’s a great place to be as long as you look after your credit report…oh, and your mum!

three young women taking selfie

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It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:
For more information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor.

Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan.
If you are on government benefits, ask if you can receive an advance from Centrelink.

The Australian Government’s MoneySmart Website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.