The Reality of Bad Credit Home Loans
Let me be straight with you: having bad credit doesn't mean you can't get a home loan. I've helped clients with discharged bankruptcies, multiple paid defaults, and credit scores in the 300s get approved for a mortgage. But I've also seen people get terrible advice - from "credit repair" companies charging thousands, from banks declining them without explanation, and from brokers who don't know the non-conforming lending space.
The latest ABS Lending Indicators show that total housing finance commitments hit $34.1 billion in December 2025. What the ABS data doesn't break down is how much of that went through specialist non-conforming lenders - but from my own panel data, I can tell you it's growing. More Australians than ever are using specialist lenders to get into the property market despite imperfect credit histories.
Our panel includes 83 lenders, and about 15 of those specialise in non-conforming or credit-impaired lending. That's 15 lenders your bank doesn't tell you about when they decline your application. Let me walk you through exactly what your options are.
What Actually Counts as "Bad Credit"?
The term "bad credit" covers a wide spectrum. Not all credit issues are created equal, and lenders treat them very differently. Here's what I see on credit reports:
Paid defaults
A default is listed when you're 60+ days late on a payment over $150. Once you pay it, it becomes a "paid default." This is the most common credit issue I see. A single paid default under $1,000 from 2+ years ago is very manageable - many mainstream lenders will still consider you. Multiple recent defaults are harder, but specialist lenders handle them daily.
Unpaid defaults
If the debt hasn't been paid, it's listed as "unpaid." Some specialist lenders will still approve you with unpaid defaults, but they'll usually require the defaults to be small (under $500 total) or for you to have a plan to pay them. Larger unpaid defaults significantly reduce your options.
Court judgments
If a creditor took you to court and won, that judgment sits on your credit report for 5 years. Judgments are more serious than standard defaults in most lenders' eyes. You'll typically need a specialist lender and a larger deposit.
Bankruptcy
A discharged bankruptcy is serious but not a dead end. You'll need to be at least 2 years post-discharge for most specialist lenders, and some want 3-4 years. You'll need 20-30% deposit and should expect rates 2-3% above standard. A current (undischarged) bankruptcy means you can't borrow at all.
Part IX debt agreement
Similar to bankruptcy in how lenders view it. Most specialist lenders want 2+ years since completion. It's slightly less severe than bankruptcy in practice, but the lending options are similar.
Late payments (no default listed)
Under Comprehensive Credit Reporting (CCR), late payments of 14+ days are now recorded on your credit file even if they don't reach the 60-day default threshold. Multiple late payments drag your score down, but they're much less damaging than formal defaults.
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How Long Credit Issues Stay on File
This is one of the questions I get asked most. People want to know when their past mistakes stop following them. Here's the definitive answer:
| Credit Event | Time on Credit Report | Notes |
|---|---|---|
| Default (paid or unpaid) | 5 years from listing date | Paying it doesn't remove it earlier, but "paid" looks much better than "unpaid" |
| Serious credit infringement | 7 years from listing date | Formerly called "clearout" - when a creditor can't contact you |
| Court judgment | 5 years from judgment date | Satisfying the judgment doesn't remove it earlier |
| Bankruptcy | 5 years from bankruptcy date OR 2 years from discharge (whichever is later) | Permanently on NPII (National Personal Insolvency Index) |
| Part IX debt agreement | 5 years from start OR 2 years from completion (whichever is later) | Similar treatment to bankruptcy by most lenders |
| Credit enquiry | 5 years | Multiple enquiries in a short period negatively impact your score |
| Late payment (14+ days) | 2 years | Recorded under Comprehensive Credit Reporting |
Here's what many people don't realise: the clock starts from the date the default was listed, not when you pay it. So if a $2,000 phone bill went to default in March 2022 and you pay it today, it still falls off in March 2027 - not 5 years from now. This means waiting might not help as much as you think. Sometimes it's better to apply now with a specialist lender rather than waiting years for listings to expire.
Credit Scores: What the Numbers Mean
Australia's main credit reporting body is Equifax (formerly Veda), which uses a 0-1,200 scale. Here's how lenders interpret the scores:
Here's what most people don't know: your credit score is only one piece of the puzzle. Lenders look at the detail behind the score - the type of defaults, how old they are, whether they're paid, and the amounts. A score of 450 with one small paid default from 4 years ago is treated very differently from a 450 with three unpaid defaults from last year.
You can check your credit score for free through Equifax. Do this before you apply for anything. I need to see your full credit report before I can tell you which lenders will work for your situation.
Specialist Lenders Who Actually Say Yes
These are the lenders on our panel who specialise in credit-impaired borrowers. They're not payday lenders or dodgy outfits - they're APRA-regulated or ASIC-licensed lenders with proper products:
| Lender | Variable Rate From | Max LVR | Accepts | Min Deposit |
|---|---|---|---|---|
| Pepper Money | 6.89% | 85% | Paid defaults, discharged bankruptcy (2yr+), Part IX | 15% |
| Liberty Financial | 6.79% | 85% | Paid defaults, credit impairment, self-employed | 15% |
| La Trobe Financial | 7.09% | 80% | Paid/unpaid defaults, discharged bankruptcy, judgment | 20% |
| Bluestone | 7.29% | 80% | Defaults, bankruptcy (2yr+), non-standard income | 20% |
| Resimac | 6.59% | 80% | Minor credit issues, near-prime borrowers | 20% |
| Think Tank | 7.49% | 75% | Complex situations, commercial crossover | 25% |
| Firstmac | 6.29% | 80% | Minor credit issues, strong overall application | 20% |
Rates are indicative only. Bad credit rates are individually assessed based on your specific credit history, deposit size, and overall application strength. Rates subject to change. Information current as of February 2026.
Notice the rate range: from 6.29% to 7.49%. That's a massive spread. On a $400,000 loan, the difference between 6.29% and 7.49% is roughly $280 per month, or $100,800 over the loan life. This is exactly why you need a broker who knows the non-conforming space inside out, not just one who sends your application to the first lender they think of.
What You'll Need: Deposits and Documentation
Bad credit lending requires more from you than a standard application. Here's what to expect:
Deposit requirements
- Minor credit issues (one small paid default, score 500-600): 10-20% deposit
- Moderate credit issues (multiple paid defaults, score 400-500): 20-25% deposit
- Serious credit issues (unpaid defaults, bankruptcy, judgments): 25-30% deposit
The larger your deposit, the more options you have. A 30% deposit with a discharged bankruptcy from 3 years ago opens more doors than a 15% deposit with a recent default.
Documentation you'll need
- Full credit report (we can pull this for you)
- Written explanation for each default/negative listing - lenders want to know what happened and what's changed
- Proof of repayment or settlement for paid defaults
- 3-6 months of bank statements showing clean recent conduct
- Evidence of savings or equity for deposit
- Standard income documentation (payslips, tax returns if self-employed)
The explanation letter is critical. Lenders want to see that you understand what went wrong and that your circumstances have changed. "I lost my job during COVID and couldn't keep up with my credit card" is a story they hear and accept. "I forgot to pay" is not helpful.
Steps to Improve Your Credit Before Applying
If you have some time before you need to buy, there are concrete steps you can take to improve your position:
1. Get your credit report. Go to Equifax and get your free report. Check it for errors - I see incorrect listings on credit reports regularly. If there's an error, dispute it directly with the credit bureau.
2. Pay any outstanding defaults. Paying a default doesn't remove it from your file, but "paid" looks significantly better than "unpaid" to every lender. A $500 paid default is manageable. A $500 unpaid default suggests you still can't manage your finances.
3. Close unused credit accounts. Cancel credit cards you don't use, close Afterpay and Zip accounts, and reduce limits on cards you keep. Every credit limit counts as a potential liability, even if the balance is zero.
4. Demonstrate clean conduct. Lenders want to see 6-12 months of clean financial behaviour. Pay every bill on time, avoid any new credit applications, and show consistent savings. This recent history matters enormously.
5. Build genuine savings. Even if you have equity for a deposit, showing 3-6 months of regular savings demonstrates financial discipline. Specialist lenders weigh this heavily in their assessment.
6. Don't apply anywhere until you've spoken to a broker. Every credit application creates an enquiry on your file. Multiple enquiries in a short period lower your score further and signal desperation to lenders. A broker submits one targeted application to the right lender - not five applications hoping one sticks.
The Refinance Strategy: Start Specialist, Move Mainstream
This is the strategy I recommend to most of my bad credit clients, and it works consistently:
Step 1: Get approved with a specialist lender now. Yes, the rate will be higher - maybe 7% instead of 6%. But you're in the property market, building equity, and demonstrating that you can manage a mortgage.
Step 2: Make every repayment on time for 12-24 months. This builds a strong recent payment history that mainstream lenders love to see.
Step 3: Once your negative listings age (or fall off entirely), refinance to a mainstream lender at a significantly lower rate.
I've helped many clients execute this exact strategy. One recent example: a client came to me with two paid defaults from 2022 and a credit score of 430. We placed them with Pepper Money at 7.1% with a 20% deposit. Eighteen months later, their score had recovered to 620, the defaults were 4+ years old, and we refinanced them to Macquarie Bank at 5.95%. That saved them $385 per month.
The maths on waiting vs acting now usually favours acting now - especially in a growing property market. If you wait 2 years for your credit to clear, property prices might have risen 10-15%, making the entry point more expensive than the rate premium you'd have paid a specialist lender.
Common Mistakes That Make Bad Credit Worse
Applying to multiple banks directly. Each application creates a credit enquiry. Five applications in a month creates five enquiries and drops your score further. Use a broker.
Using "credit repair" services. Most of these companies charge $2,000-$5,000 to do things you can do yourself for free (like disputing incorrect listings with the credit bureau). Some are outright scams. The only legitimate way to remove a listing is if it's genuinely incorrect or if you negotiate directly with the creditor to have it removed (which rarely works for legitimate debts).
Ignoring small debts. A $200 unpaid phone bill can create a default that costs you $50,000 in higher interest over a loan's life. If you have any unpaid debts, pay them immediately.
Taking on more credit. Signing up for a new credit card or Buy Now Pay Later service when you already have credit issues makes everything worse. Lenders see new credit applications as a sign of financial stress.
Not being upfront with your broker. I can't help you if I don't know the full picture. Tell me about every default, every debt, every issue. I'll find it on your credit report anyway, and surprises mid-application waste everyone's time and potentially create another enquiry on your file.
Frequently Asked Questions
Can I get a home loan with bad credit in Australia?
Yes. While major banks are unlikely to approve you with recent defaults or a low credit score, specialist non-conforming lenders exist specifically for credit-impaired borrowers. Lenders like Pepper Money, Liberty Financial, La Trobe Financial and Bluestone actively lend to people with paid defaults, discharged bankruptcies, and credit scores below 500. Rates are higher (typically 1-3% above standard), and you'll usually need a larger deposit (20-30%), but approval is genuinely possible.
How long do defaults stay on my credit report?
A default listing stays on your credit report for 5 years from the date it was listed, regardless of whether you pay it. A serious credit infringement stays for 7 years. Court judgments also remain for 5 years. Bankruptcies appear on the National Personal Insolvency Index permanently, but on your credit report for either 5 years from the date of bankruptcy or 2 years from discharge, whichever is later.
What credit score do I need for a home loan?
Most major banks want a credit score above 600-650 (on the Equifax scale of 0-1,200). A score above 700 gives you access to the best rates. Between 500-600, you're limited to some second-tier lenders. Below 500, you'll need a specialist non-conforming lender. However, credit score alone doesn't determine approval - the type, age, and size of any negative listings matter just as much.
Will applying for a home loan hurt my credit score?
Yes, each application creates a credit enquiry on your file. Multiple enquiries in a short period can lower your score and signal desperation to lenders. This is one of the biggest reasons to use a broker rather than applying directly to multiple banks. A broker submits one application to the most suitable lender, not shotgun applications to five banks hoping one says yes.
Can I refinance to a better rate once my credit improves?
Absolutely, and this is the strategy I recommend. Get approved with a specialist lender now, make your repayments on time for 12-24 months, and once the negative listings age or fall off your report, refinance to a mainstream lender at a significantly lower rate. I've helped many clients save $200-$400 per month by refinancing after their credit improved. Read our refinancing guide for the full process.
How much deposit do I need with bad credit?
Most specialist lenders require 20-30% deposit for credit-impaired borrowers. Some will consider 15% with a strong application. The larger your deposit, the more options you have and the better rate you'll get. If you have a paid default under $500 and a score above 550, some lenders will go to 90% LVR. See our deposit guide for a full breakdown of requirements.
Your Next Step
Having bad credit doesn't mean sitting on the sidelines while property prices keep climbing. There are genuine options, and the specialist lending market is more competitive than it's ever been - which means better rates and more flexibility for borrowers who need it.
Your first step is to understand exactly where you stand. Get your credit report, then talk to a broker who knows the non-conforming lending space. We review credit files every day and can tell you within minutes which lenders are likely to approve you and at what rate.
You can book a free consultation with us. We'll pull your credit report, assess your options across our panel of 83 lenders (including 15+ specialist non-conforming lenders), and give you a clear path forward. No obligation, no judgment, and it costs you nothing.
