What Is Bad Credit?

Life can throw unexpected financial challenges your way — a job loss, a medical emergency, a relationship breakdown, or simply a period where the bills piled up faster than the income came in. If any of these situations have left a mark on your credit history, you may be wondering whether homeownership is still within reach. The short answer is: yes, it often is.

Bad credit refers to a pattern of financial behaviour that raises concerns for lenders — things like missed repayments, unpaid debts, defaults, or more serious events like bankruptcy. These incidents are recorded on your credit file by one of Australia's three credit reporting bureaus — Equifax and Experian(and also illion), and lenders review this file before making any lending decision.

A credit score is a number that represents how reliable you've been with credit and debt in the past — and by extension, how likely you are to repay future debts on time.

A high score means lower risk, a better chance of approval, and often better rates. A low score means higher risk, a possible decline, or approval with stricter conditions.

But here's the important thing: it's not a moral judgement. Life happens. People miss payments, go through financial hardship, and make decisions they'd do differently with hindsight. The score is just a snapshot of the data on your file at a given point in time.

What Is Considered a Bad Credit Score in Australia?

In Australia, your credit score is calculated by one of three bureaus — Equifax, Experian, or illion. Each uses a slightly different scale:

• Equifax scores range from 0 to 1,200
• Experian scores range from 0 to 1,000
• illion scores range from 0 to 1,000

Because each bureau uses a different scale and method, the same person can hold three different scores at once. Always check all three before making a major application.

On the Equifax scale — which is used by most major banks — here is how the bands break down:

🟢 Excellent — 853 to 1,200
Full access to mainstream lending at competitive rates.

🔵 Very Good — 735 to 852
Strong access to mainstream lenders with good rate options.

🟡 Good — 661 to 734
Standard lending at mainstream rates is generally available.

🟠 Average — 460 to 660
Approvals are possible but typically come with higher interest rates.

🔴 Below Average — 0 to 459
Most mainstream lending is very difficult. Specialist and non-conforming lenders are generally the only option in this range.

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What Does "Bad Credit" Look Like to a Lender?

Lenders take a close look at your credit file and consider several factors when assessing your application. Common items that raise concerns include:

• Defaults: A default is recorded when a repayment is 60 or more days overdue and the creditor has been unable to recover it. A single default can drop your Equifax score 100–200+ points immediately.

• Court Judgements: Court judgements have comparable impact to defaults, and both stay on your file for 5 years from the date of listing.

• Bankruptcy: Most defaults remain on your Equifax credit file for 5 years from the date they were listed. Bankruptcies stay for 5 years from the date you became bankrupt, or 2 years after discharge, whichever is later.

• Part IX Debt Agreements: Even after a Part IX is discharged, it remains on your credit file for 5 years from when you entered the agreement.

• Multiple Credit Enquiries: Every formal application leaves an enquiry in your file. Multiple enquiries in a short period can lower your score and raise red flags.

• Buy Now, Pay Later (BNPL) Misuse: From 10 June 2025, BNPL providers — Afterpay, Zip, Klarna, humm and others — are regulated under the National Consumer Credit Protection Act. Missed BNPL payments can now be reported to credit bureaus, and multiple BNPL applications in a short period count as multiple hard enquiries.

Can I Still Get a Home Loan With Bad Credit?

Absolutely. Bad credit does not mean no home loan. Specialist lenders in Australia assess bad credit applications individually, considering your deposit, income stability, and the overall financial picture.

What changes are the choice of lender, the interest rate, and sometimes the loan terms. Bad credit home loans operate on the same structure as standard loans — you borrow, buy, and repay with interest.

The key is knowing who to approach and how to present your situation — and that's exactly where a specialist mortgage broker adds real value.

Major Banks vs. Specialist Lenders — What Is the Difference?

Understanding who will actually consider your application is one of the most important first steps.

Major Banks — CBA, ANZ, NAB, Westpac
The major banks use automated, conservative credit scoring systems. If you have an active default, court judgement, or discharged bankruptcy on your file, they will typically decline your application automatically. They heavily weight your credit score and have very little flexibility for individual circumstances.

Specialist Non-Conforming Lenders — Pepper Money, La Trobe Financial, Bluestone, Resimac, Liberty Financial
These lenders are ASIC-regulated and exist specifically to help borrowers who fall outside standard bank criteria. They assess each application individually, placing greater weight on your income stability, deposit or equity position, employment history, and overall financial story — not just your credit score number. Their interest rates are typically 2 to 4 percent above mainstream rates, but they represent a genuine and legitimate path to homeownership for people with impaired credit.

Bad Credit Home Loan Options in Australia

1. Home Loans With Defaults

If you have a default listed on your credit file, you still have options. Lenders generally categorise defaults as:

• Paid defaults — where the outstanding amount has been settled in full
• Unpaid defaults — where the debt remains outstanding

A default from 4 years ago is viewed very differently from one that occurred last year. Some specialist lenders require defaults to be at least 12–24 months old before they will consider an application.

Similarly, a $500 telco default is very different from a $50,000 credit card default. Small defaults with a clean record since are often manageable, while large financial institution defaults require more careful handling.

Minor defaults under $500, such as telco debts, may be considered by some lenders, sometimes even at higher loan-to-value ratios, depending on the rest of the borrower's profile. Larger defaults push you toward specialist-only territory, but that territory still has real options.

2. Home Loans After Discharged Bankruptcy

Being declared bankrupt doesn't permanently close the door to homeownership. Once you are legally discharged from bankruptcy, you may be eligible to apply for a home loan.

Bankruptcy is a legal process that provides relief to individuals overwhelmed by debt. While it offers a fresh financial start, it also leaves a significant dent in your credit history. After bankruptcy, many individuals find it difficult to secure credit, making it challenging to purchase a home.

Most banks that accept discharged bankrupts require at least 2 years of being discharged before you can apply for a mortgage. However, with specialist non-conforming lenders, a discharged bankruptcy home loan may be possible from as little as 1 day after discharge.

3. Home Loans After a Part IX Debt Agreement

A Part IX debt agreement is a legally binding arrangement under the Bankruptcy Act 1966. Instead of declaring bankruptcy, you negotiate with all of your unsecured creditors to pay an amount you can afford over a set period.

Getting a home loan after a Part IX Debt Agreement is possible, but only once the agreement is fully completed. While most major banks are likely to decline your application due to the agreement's impact on your credit report, some specialist lenders may consider you based on your financial recovery.

You don't necessarily have to wait five years for the agreement to clear off your credit file to apply for a home loan. Your eligibility depends on how long it has been since your discharge — some specialist lenders may consider your application one day after discharge.

4. Debt Consolidation Home Loans

If you're juggling multiple debts — credit cards, personal loans, car finance, buy now pay later accounts — a debt consolidation home loan can roll them all into a single, more manageable repayment. This approach may simplify your finances, reduce your monthly outgoings, and potentially lower the total interest you pay compared to maintaining multiple high-rate debts.

This type of loan is typically used when existing debts have become unmanageable, and the equity in a property (or a sufficient deposit) can be used to secure the new consolidated loan.

5. Tax Debt Home Loans

Outstanding ATO (Australian Taxation Office) debt can complicate a standard home loan application. However, specialist lenders may allow the ATO debt to be incorporated into the mortgage, clearing the tax liability and converting it into a manageable home loan repayment. This solution is available on a case-by-case basis and generally requires sufficient property equity or deposit.

Interest Rates on Bad Credit Home Loans

One of the most important things to understand is that bad credit home loans come at a cost. Higher interest rates are generally associated with bad credit home loans. Risk-based pricing allows lenders to remain profitable when dealing with higher-risk borrowers.

Expect to pay 1–3 percentage points above mainstream rates — on a $500,000 loan over 30 years, a 3% rate premium adds approximately $279,000 in additional interest, so improving your credit score before applying (if time allows) can make a significant financial difference.

Your rate options typically include:

• Fixed Rate: Fixed-rate options allow you to potentially lock in your payments but may limit flexibility.

• This suits borrowers who want predictable repayments while they rebuild their credit history.
• Variable Rate: Variable rates may present savings if the conditions are right in the market, but the uncertainty may add to your stress.

• Split Rate: Some lenders provide a split-rate facility that allows access to both fixed and variable options at the same time.

The good news? Starting with a bad credit home loan doesn't lock you in forever. Rates are typically higher than those offered by major banks at first, which is why many borrowers plan to refinance after demonstrating a strong repayment history. Refinancing for a lower interest rate is possible after a 12 to 24-month clean repayment period.

How to Improve Your Chances of Approval

Check Your Credit File Before You Apply

Before approaching any lender, obtain a copy of your credit report from Equifax, Experian, and illion. Errors do appear on credit files, and an incorrectly listed default can reduce your Equifax score by 80–200 points and may be removable under the Privacy Act 1988 (Cth) if it was listed without following the required process.

Save a Larger Deposit

A larger deposit will improve your chances of approval on the application.

Aiming for a deposit of 20% or more reduces the lender's risk and may open up better loan terms.

Demonstrate Stable Income

Work with a specialist mortgage broker, save at least 20% deposit, demonstrate 6+ months of stable income, and consider non-conforming lenders who assess the full picture rather than applying automatic decline rules.

Don't Apply to Multiple Lenders at Once

Every formal credit application lodges a "hard enquiry" on your credit file. Multiple hard enquiries within a short window signal credit stress to lenders and further lower your score.

Working with a specialist broker first helps identify the right lender before submitting any application.

Address Existing Debts

Keep up with any current financial obligations. Consistent, on-time repayments — even small ones — show lenders you are actively managing your finances responsibly.

Consider Timing

One significant aspect to consider is the potential for refinancing down the line. As you work on improving your credit score and financial health, you might qualify for better loan terms in the future. This means that starting with a bad credit home loan doesn't lock you into unfavorable conditions forever.

Why Work With a Specialist Mortgage Broker?

Not all mortgage brokers are created equal when it comes to bad credit.

Not all mortgage brokers work with non-conforming lenders. Many brokers only access the major banks and tier-two lenders — and if your credit file has a default, they'll simply tell you they can't help. A specialist broker with non-conforming lending experience has access to Pepper Money, La Trobe Financial, Bluestone, Resimac, and other lenders who specifically assess impaired credit applications.

What specialist lenders want to know is straightforward: what has changed since those credit issues occurred? Can you service this loan right now, today? Do you have genuine savings or equity? What does your employment look like? They are assessing your current fundamentals, not just penalising you for yesterday's mistakes.

A specialist mortgage broker can:

• Review your complete credit file across all three bureaus.
• Identify the right lender for your specific credit profile.
• Structure your application to put your strongest foot forward.
• Submit a single, targeted application — protecting your credit score from unnecessary enquiries.
• Guide you through the approve → repair → refinance strategy for long-term financial success.

Ready to explore your options? Speak with one of our specialist mortgage brokers today — we are here to help you find a path forward, regardless of your credit history.

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