Can you get a home loan with bad credit?
Yes. Banks mostly run applications through scoring systems with hard cut-offs. Specialist lenders still use credit scores, but a person reads your file and asks why. That's the difference that gets many people over the line.
It's not unlimited. A lender has to be confident you'll repay, and recent or unexplained problems are harder to place than old, settled ones. But 'bad credit' covers a huge range, from one forgotten utility bill to a bankruptcy, and most of that range can be financed by someone.
How lenders grade credit problems
| Credit event | How it's usually seen | What helps |
|---|---|---|
| Small paid default (phone, utility) | Minor, especially if more than 12 months old | Proof it's paid and a one-line explanation |
| Unpaid default | A concern for most lenders | Paying it or agreeing a payment plan before applying |
| Recent late repayments | Taken seriously, especially on a current mortgage | A clean run of on-time payments since |
| Court judgement | Serious, and harder if unsettled | Settling it and keeping the paperwork |
| Discharged bankruptcy | Possible with specialists, more options as time passes | A clean record since discharge. More |
| Part 9 debt agreement | Possible, especially once it's finished | A full repayment history. More |
Credit reporting rules set how long each item stays on your file. Repayment history is generally kept for two years, and most defaults and court judgements for five. Personal insolvency information lasts longer. Our guide on fixing bad credit before a home loan has the detail.
What makes a bad credit application stronger
- A clear explanation. Two or three honest sentences about what happened, ideally with proof, such as a medical certificate, separation date or business closure notice.
- Time since. Every month of clean conduct counts. Six to twelve months without a missed payment changes how a lender reads an older problem.
- Settled debts. Paying a default doesn't remove it, but it gets it updated to 'paid', which lenders weigh much more kindly.
- A bigger deposit or more equity. It lowers the lender's risk and widens the field.
- Fewer, better applications. Each formal application adds an enquiry to your file. Several in a short time looks like desperation, so apply once, to the right lender.
Buying a home with bad credit
If you're buying, the deposit is your biggest lever. Specialist lenders usually want more than a bank would, and lenders mortgage insurance may be harder to get, so a lower loan-to-value ratio opens doors. First home buyer? See first home buyer loans with bad credit for how government schemes fit in.
Refinancing with bad credit
Refinancing with damaged credit usually happens for one of three reasons: you're behind on your current loan, you want to roll expensive debts into the mortgage, or you've been on a high-cost loan and your record has improved enough to move.
Each has its own page: refinancing when you're in arrears, consolidating debt into your mortgage and bad credit refinancing.
Watch out for 'guaranteed approval'
Your explanation letter: a simple template
Lenders often ask for a short written explanation. Keep it factual and brief:
- 1
What happened
One or two sentences. For example: 'In 2023 my hours were cut and I fell behind on a credit card, which was defaulted.'
- 2
Why it happened
The cause, with proof where you have it, such as a separation date, medical certificate or redundancy letter.
- 3
What you did about it
Paid in full on a date, a payment plan, or settled the judgement.
- 4
What's different now
Stable job since a date, a budget, savings, no missed payments since.
What you’ll need
- Photo ID
- Your credit reports (free from Equifax, Experian and illion)
- A short written explanation of any credit problems
- Proof that defaults or judgements are paid, if they are
- Payslips or other income evidence
- 3 to 6 months of bank statements
- Loan statements if refinancing
Who it usually suits
- Australian citizen or permanent resident
- Income that covers the repayments
- A deposit or equity in the property
- Credit problems explained, and ideally settled
- A recent run of on-time payments
