I have a bad credit score. Can I get a Home Loan?

The Quick & Dirty:

Yes, you can still get a home loan with a bad credit score in Australia, but your options depend on what's on your file and how long ago it happened. Missed payments, defaults and lots of recent credit applications all affect your score, and each stays on your report for a set time.

The good news is that most negative information drops off eventually, and recent on-time repayments count in your favour. A few months of preparation can make a real difference to which lenders will say yes.

Why I want you to read this before you apply

I chat to a lot of people who assume a bad credit score means they can't buy a home. Often they've been knocked back once, felt embarrassed, and stopped trying.

Here's what I want you to know:

A credit score is a snapshot, not a verdict. Many lenders will look at the story behind it. My job is to help you understand that story, fix what can be fixed, and find the lender who'll look at you fairly.

What do lenders actually see on my credit report?

Your credit report is held by credit reporting agencies, and it records your credit history, including your loans, credit cards, phone and utility accounts, any court judgments, defaults,company Directorships, your repayment history for some credit, and any bankruptcy.

Two things are super important for home loans:

Repayment history. A payment made more than 14 days after the due date counts as missed. Your report shows the age of your oldest missed payment as a number from 0 to 7 months.

Credit enquiries. Every time you apply for credit, it's recorded. Lots of applications in a short time can make lenders nervous, even if you were approved.

Since comprehensive credit reporting came in, your on-time payments now show up too. That means good behaviour works in your favour, not just bad behaviour working against you.

How long does bad credit stay on my file?

This surprises a lot of people. Negative information isn't permanent.

According to the OAIC, here's how long each type of information stays on your report:

Financial hardship information: 1 year Repayment history: 2 years Credit enquiry: 5 years Defaults: 5 years Court judgments: 5 years Serious credit infringements: 7 years

A default can be listed when a payment has been overdue for at least 60 days. And if you pay a default after it's listed, it stays on your report for the full period but is updated to show you've paid it. That update matters: lenders view a paid default very differently to an unpaid one.

Can I still get a home loan with bad credit?

Often, yes. But it depends on:

What's on your file. A couple of late payments two years ago is very different to an unpaid default from last month.

How long ago it happened. The older the issue, and the cleaner your record since, the more options you'll have.

Whether there's a reason. Job loss, illness or a relationship breakdown are all things lenders can take into account if they're explained properly by your Broker.

If the major banks aren't the right fit, specialist lenders exist for people with credit history issues. Their rates are usually higher, but they can be a stepping stone. Once your file has had time to recover, you can look at refinancing to a lower interest rate.

One thing to be aware of is if you're hoping to use the Australian Government 5% Deposit Scheme, you'll still need to meet the participating lender's credit policy. Being eligible for the scheme doesn't guarantee loan approval, so it's worth getting your credit in order first.

How can I improve my credit score before applying?

Here's what you can do:

Get your free credit reports.

You're entitled to a free copy of your report every 3 months from each agency. Check Equifax, Experian and illion, as they can hold different information.

Fix errors for free.

If something is wrong, you can ask for it to be corrected at no cost. You don't need to pay a credit repair company to do this. Pay a default if you have one. It won't disappear, but it will show as paid.

Stop applying for new credit.

Hold off on new credit cards, buy now pay later accounts and personal loans in the months before your home loan application.

Set up automatic payments.

Two years of clean repayment history rebuilds that part of your record completely.

Reduce your credit card limits.

Lenders assess the full limit as potential debt, even if you never use it.

Frequently asked questions

Does checking my own credit score hurt it?

No. Checking your own report doesn't count as a credit enquiry. Only applications for credit are recorded.

Should I use a credit repair company?

Be careful. Moneysmart warns that credit repair companies charge fees for things you can do yourself for free, and they can't remove accurate information from your report.

Can a broker help if I've been rejected by my bank?

Yes. 100% A broker can look at your full file before applying, explain your situation to the right lender, and help you avoid stacking up more rejections and enquiries.

In Summary...

A bad credit score is a starting point, not a dead end. With the right Broker, preparation and the right lender, home ownership is often a lot closer than it feels right now.

The most important step is simply knowing where you stand.

Want to chat mroe about your credit? Book a free chat with me by clicking here.

Any information or advice contained on the April Six Pty Ltd website is general in nature only and has been prepared without considering your individual personal objectives, financial situation or requirements. Before acting or relying on this information, you must consider the appropriateness of this information with regard to your individual circumstances and objectives.

April Six Pty Ltd is a Credit Representative of Astute Financial Management Pty Ltd | Australian Credit Licence 364253

© April Six Pty Ltd | ACN: 667183735 | Credit Representative Number 554762

Eshanee Collins is the founder of April Six, a Sydney-based mortgage broker for first home buyers and first-time property investors across Australia.