Key Takeaways
- “Bad credit” isn’t one category, an old paid default, current mortgage arrears and a discharged bankruptcy carry very different risk profiles and lead to very different lender options.
- Paying off a default doesn’t remove it from your file, it stays for five years, but it does update to show it’s resolved, which genuinely strengthens your position.
- A stronger deposit or equity position broadens your lender choice and improves pricing, since it reduces the risk a lender is taking on alongside your credit history.
- Avoid applying with multiple lenders at once, every application shows up as an enquiry for five years, so it’s better to get a clear picture of your file first and match to a lender whose policy genuinely fits.
If something’s gone wrong with your credit history- a missed payment, a default, arrears on an existing mortgage, or something more serious like a debt agreement or past bankruptcy- it’s easy to assume the door to home ownership has simply closed. A lot of borrowers in this position spend hours searching for “the bank that approves bad credit,” as if one single lender exists somewhere who says yes to everyone else has said no to.
That’s not really how it works, and understanding why is the key to making a genuinely informed decision here. “Bad credit” isn’t one thing. A $500 phone bill default from four years ago, already paid, sits in a completely different risk category to current mortgage arrears or an active debt agreement. The lender that might work well for one situation may not be remotely suitable for another. The real question isn’t “which lender approves bad credit,” it’s “what exactly is on my file, how severe and recent is it, and which lender’s policy is actually built to accommodate that specific situation.”
This article walks through exactly how that assessment works, what genuinely changes your options depending on the type of credit issue you’re carrying, and how to approach this in a way that protects your credit file rather than accidentally making things harder.
What “bad credit” actually means
Before going any further, it’s worth being precise about this term, because it covers a genuinely wide range of situations, each treated quite differently by lenders.
- A low credit score on its own, which can result from things like multiple recent credit applications or a short credit history, without any actual adverse event recorded
- An isolated missed repayment, sometimes called repayment history information
- A formal default listed against your name
- Current or recent arrears on an existing mortgage
- A Part IX or Part X debt agreement
- Past or current bankruptcy
These aren’t interchangeable, and lumping them all together under “bad credit” is exactly why so many borrowers feel like they’re getting vague, unhelpful answers. A lender assessing an old, paid default is asking a genuinely different question to one assessing current mortgage arrears.
Start by checking your own credit report
Before you apply anywhere, it’s worth understanding exactly what’s actually on your file, rather than relying on assumptions. You’re entitled to request a free copy of your credit report every three months, and it’s worth checking both of Australia’s main credit reporting bodies, since the information they hold isn’t always identical. This step matters for two reasons. First, it lets you correct any genuine errors before a lender sees them, inaccurate information can and should be challenged. Second, it gives you an honest, specific picture of your situation, rather than a vague sense that your credit is “probably bad,” which makes it far easier to have a genuinely useful conversation with a broker or lender about your realistic options.
Missed repayments versus formal defaults
This distinction is genuinely important, and it gets blurred far too often in general advice about “bad credit.”
A missed repayment
Repayment history information can show up on your credit file where a payment is more than 14 days overdue. This is generally less serious than a formal default, and it typically remains on your file for two years.
A formal default
A default is a more serious listing, and it’s generally only recorded where the amount owing is at least $150, the payment is at least 60 days overdue, and the required notices have actually been issued to you. A default is a meaningfully bigger red flag than an isolated late payment, and it stays on your credit report for five years.
Understanding which of these actually applies to your situation is the first step in working out how serious your position genuinely is, rather than assuming the worst based on vague memories of “missing a payment once.”
Which type of lender might consider your situation
Rather than searching for one specific lender name, it’s more useful to understand the broad tiers of lenders in the Australian market and what generally sits within each.
Mainstream lenders
For minor, older, or already-resolved credit issues, particularly where the rest of your financial position is strong, some mainstream lenders may still be an option, depending on their specific policy and how the issue is explained.
Non-bank lenders
These lenders often apply a more manual, flexible style of credit assessment, looking at the full picture and the story behind an issue rather than applying a rigid cutoff.
Specialist or non-conforming lenders
For more significant events, defaults, mortgage arrears, debt agreements, or bankruptcy, specialist lenders exist specifically to serve borrowers in these situations. Some of these lenders publish products explicitly designed around adverse credit, considering applicants that mainstream policy would typically decline. It’s worth being clear that even within the specialist space, no lender approves every adverse-credit borrower. Each has its own tolerance for the type, size, age and explanation of the credit issue involved.
How different credit issues generally affect your options
This table gives a general sense of how severity tends to shift your realistic pathway, though it’s worth treating this as broad positioning rather than a guarantee for your specific circumstances.
| Credit issue | General effect on your options |
| Low score only, otherwise clean conduct | May still fit a range of mainstream or non-bank policies |
| Isolated missed repayment | Generally more workable than a formal default |
| Old, paid default | Often considerably more workable than a recent or unpaid one |
| Recent or unpaid default | More likely to require a specialist lender |
| Current or recent mortgage arrears | A significant concern requiring careful, specialist assessment |
| Debt agreement | Specialist lender policy generally required |
| Discharged bankruptcy | Specialist policy, with timing and conduct since discharge mattering significantly |
Can you get approved with a paid default
It’s a common misconception that paying off a default makes it disappear from your credit file. It doesn’t, a default generally remains on your report for five years, regardless of whether it’s since been paid. What paying it does do is genuinely improve your story, since the listing should be updated to show it’s been paid, and that distinction matters to a lender assessing your application. An old, paid default, particularly one that’s several years old with clean conduct since, is generally a considerably more workable situation than borrowers often assume, and it can leave you with more lender options than the word “default” might suggest.
Can you get approved with an unpaid default
This is a harder situation, but it doesn’t automatically rule you out. Some specialist lenders do have policies that may consider unpaid defaults, though the outcome depends heavily on the amount involved, how old the default is, the circumstances behind it, and your deposit or equity position. It’s genuinely worth having an honest conversation about your specific default rather than assuming either that it’s a complete dealbreaker or that it will be waved through without scrutiny.
Can you get a home loan with mortgage arrears
This deserves particular attention, because current mortgage arrears tend to be viewed more seriously than an old consumer default like an unpaid phone bill. A lender is naturally paying close attention to how you’ve managed housing debt specifically, since that’s the most direct indicator of how you’re likely to manage a new mortgage. There’s a meaningful difference between mortgage arrears that occurred some time ago, followed by a genuine return to consistent, on-time repayments, and arrears that are current or very recent. If you’re currently behind on your mortgage and considering refinancing, it’s worth having a frank conversation about your realistic position, since this is one of the more specialist scenarios in this whole topic.
Home loans after bankruptcy or a debt agreement
These are genuinely more complex situations, and it’s worth approaching them with realistic expectations rather than assuming a quick fix exists. Bankruptcy remains on your credit file for the later of five years from when you became bankrupt, or two years after the bankruptcy ends. A debt agreement follows a similar structure, remaining on file for the later of five years from the agreement date, or two years after specified termination or completion events. Specialist lender policies do exist for borrowers who’ve been discharged from bankruptcy or completed a debt agreement, but timing matters considerably, how long ago the event occurred, how your conduct has looked since, and how much deposit or equity you’re bringing to the table all factor into what’s realistically available to you.
What about financial hardship arrangements
This is worth clarifying, because it’s a common and understandable worry. Entering into a financial hardship arrangement with a lender doesn’t itself reduce your credit score, and if you comply with the arrangement, your repayment history is generally shown as up to date rather than in arrears. This hardship information remains on your file for one year. If you’ve previously needed to arrange hardship support and have complied with it properly, this is a genuinely different, and generally less serious, situation than a default or ongoing arrears.
How long different information stays on your credit report
Having a clear picture of these timeframes helps you understand not just where you stand today, but when your position is likely to genuinely improve.
| Information type | Typical retention period |
| Repayment history (missed payments) | 2 years |
| Financial hardship arrangement | 1 year |
| Default | 5 years |
| Credit enquiry | 5 years |
| Serious credit infringement | 7 years |
| Bankruptcy | Later of 5 years from bankruptcy, or 2 years after it ends |
| Debt agreement | Later of 5 years from the agreement, or 2 years after specified end events |
Does your deposit or equity affect your approval chances
Yes, and this is one of the more significant levers available to you. A larger deposit, or more equity if you’re refinancing, genuinely reduces the risk a lender is taking on, which can broaden your options and improve your pricing.
Consider two borrowers with an identical old, paid default. One has a 20 per cent deposit and three years of clean conduct since the default. The other has a 5 per cent deposit and the same default history. The combined risk profile of the second application is genuinely higher, purely because there’s less buffer if things don’t go to plan. This doesn’t mean a smaller deposit rules you out, but it does mean a stronger deposit or equity position tends to open up more lender choice and better terms.
Can you borrow 90 or 95 per cent with bad credit
Some specialist products do advertise high maximum loan-to-value ratios (LVR), the proportion of the property’s value you’re borrowing, in some cases up to 95 per cent. It’s important to understand that this represents the maximum a particular product can technically offer, not a typical outcome for every adverse-credit borrower. The actual LVR you can realistically achieve depends heavily on the type, size and age of your credit event, your current income and liabilities, the property itself, and your overall financial position. Treat any advertised maximum as the ceiling of what’s possible under ideal circumstances, not a number you should assume applies directly to your situation.
Will your interest rate be higher
Generally, yes, though the amount varies considerably depending on your specific situation. Bad-credit and specialist lending is typically priced using risk-based factors, meaning your rate reflects the severity and recency of your credit event, your LVR, your income, and the security property itself. An old, minor, resolved issue with a strong deposit is likely to attract considerably better pricing than a current, more serious event with a smaller deposit. It’s worth understanding this as a spectrum rather than a single fixed “bad credit rate.”
What fees might apply to a bad credit home loan
Beyond the interest rate, it’s worth understanding the fuller cost picture before committing to a specialist product.
- An establishment or application fee, charged to set up the loan
- A valuation fee for the security property
- Ongoing or monthly account-keeping fees, depending on the product
- A lender protection or risk fee, which some specialist lenders charge in place of, or alongside, standard lenders mortgage insurance (LMI)
- LMI itself, where the loan structure involves a mainstream high-LVR arrangement
- A discharge fee, payable when you eventually exit or refinance the loan
It’s worth understanding that a lender protection or risk fee and standard LMI aren’t necessarily the same thing, or calculated the same way, so it’s genuinely worth asking which specific cost structure applies to any product you’re considering.
A worked scenario: the old, paid default
Consider a first-home buyer with a $1,500 telecommunications default from three years ago, now paid, and a clean repayment record ever since. They’ve saved a 20 per cent deposit. This borrower’s situation is considerably stronger than the word “bad credit” might suggest. The default is old, it’s paid, and there’s a solid track record of clean conduct since. Depending on the rest of their financial profile, they may genuinely have a broader range of lender options available than they’d expect, potentially including some mainstream or non-bank pathways, rather than being limited purely to specialist, higher-cost lending.
A worked scenario: recent mortgage arrears
Now consider someone refinancing their existing home, who fell two months behind on their mortgage during a difficult period but has since brought the loan current and has substantial equity in the property. This is a genuinely more specialist situation. The recency of the arrears is the key factor here, current mortgage lenders will want to understand what caused the arrears, whether it’s resolved, and how conduct has looked since. The substantial equity is a real strength, but it’s likely this borrower’s realistic pathway sits with a lender that specifically considers recent mortgage-conduct issues, rather than a mainstream policy.
A worked scenario: discharged bankruptcy
Consider a borrower whose bankruptcy was discharged some time ago, who now has stable, ongoing employment and has built 25 per cent equity or deposit. Specialist lender policies genuinely exist for borrowers in this position, though timing and the record since discharge matter considerably. The combination of stable employment and a solid equity position are real strengths, but this remains a specialist scenario, and it’s worth approaching it with a clear understanding of the relevant reporting periods and how they interact with your specific discharge date.
If your credit history includes defaults, arrears or a low score, it may help to explore bad credit loans to understand which lender types may be more flexible with your specific situation. If you already own a property and are trying to move away from a higher-cost specialist loan, reviewing your refinance options can help you see whether improved repayment conduct or equity has opened up better choices. For borrowers purchasing their first property, it is also worth checking the extra deposit and eligibility considerations that apply to first home buyers before applying.
Should you apply now or wait
This is a genuinely important decision, and “approval is technically possible” doesn’t automatically mean applying right now is the financially smartest move.
Applying now may make sense if
- The credit event is resolved and your conduct has genuinely improved since
- You have a solid deposit or equity position
- A viable, appropriately priced lender option exists for your specific situation
- You have a time-sensitive need to buy or refinance
Waiting may help if
- An outstanding debt could realistically be paid off in the near term
- Your clean conduct is only very recent and more time would strengthen your file
- Your deposit is actively growing and would meaningfully improve your LVR position soon
- The specialist pricing currently available to you is prohibitively expensive relative to your situation
Can you refinance to a mainstream lender later
This is often a genuinely useful long-term strategy, though it’s worth approaching it as a goal to work towards rather than a guaranteed timeline. The general idea is to take a specialist loan now if that’s what your situation calls for, establish a clean, consistent repayment record, and, as your LVR improves and adverse listings age off your file or expire, reassess whether a mainstream refinance becomes realistic. Rather than assuming a fixed period like twelve or twenty-four months, it’s worth checking your actual position against current lender policy as time goes on, since the right time to refinance depends on your specific credit file, your current equity, and how mainstream lender policy looks at that point.
How to strengthen your position before applying
Regardless of your specific situation, there are concrete steps worth taking before you approach a lender.
- Obtain your credit reports from both main reporting bodies and check them carefully for errors
- Correct any genuinely inaccurate information, rather than assuming you have to accept everything listed
- Pay or resolve outstanding debts where you’re realistically able to
- Establish and maintain a clean, consistent repayment record from this point forward
- Reduce unnecessary unsecured debt, including high credit card limits you’re not using
- Avoid making multiple speculative loan applications, since credit enquiries themselves appear on your file and remain there for five years
- Build your deposit or equity position as much as your circumstances allow
- Prepare a clear, honest explanation of any genuine adverse event, what happened, how it was resolved, and why it’s unlikely to recur
That last point is worth taking seriously. A lender assessing adverse credit isn’t just reading a number, they’re trying to understand the story behind it, and a clear, honest explanation can genuinely make a meaningful difference to how your application is received.
Why multiple applications can work against you
It’s tempting, when you’re worried about being declined, to apply with several lenders at once and see who says yes. This is worth avoiding. Every credit application you make can appear on your credit file, and that enquiry information remains there for five years. Submitting multiple applications in a short period can make your file look riskier, not safer, and it may actually work against the very approval you’re trying to secure. A better approach is to get a clear, honest picture of your credit file first, then match your specific situation to a lender whose policy genuinely fits, rather than applying broadly and hoping for the best.
How a mortgage broker can help
This is genuinely one of the areas where a broker’s knowledge of specific lender policy makes a real difference, because the variation across the market on adverse credit is significant. We can help you understand exactly what’s recorded on your file, how a specific lender is likely to view the type, size, age and explanation of your credit event, what LVR is realistically achievable given your deposit or equity, and how pricing is likely to compare across the options genuinely available to you. We can also help you avoid the mistake of applying broadly and damaging your file further, by identifying a well-matched lender before you lodge anything, and help you think through whether applying now or waiting a little longer genuinely serves your situation better. Where a specialist loan is the right starting point, we can also help you plan towards a mainstream refinance as your position improves over time.
Frequently Asked Questions (FAQs)
1. Can I get a home loan with bad credit in Australia?
Yes, it’s genuinely possible in many cases, though there’s no single lender that approves every type of adverse-credit situation. Your realistic options depend on exactly what’s recorded on your file, how severe and recent it is, whether it’s been resolved, and your deposit or equity position.
2. Can I get a mortgage with a paid default?
Often, yes, particularly if the default is older and your conduct has been clean since. It’s worth understanding that paying a default doesn’t remove it from your credit report, it remains listed for five years, but it should be updated to show it’s paid, which genuinely improves your position compared with an unpaid default.
3. Does paying off a default remove it from my credit report?
No, a default generally stays on your credit report for five years regardless of whether it’s been paid. Paying it does update the listing to reflect that it’s resolved, which is meaningfully better for your application than an unpaid default, but it doesn’t erase the record entirely.
4. Can I get a home loan if I’m currently behind on my mortgage?
It’s possible, but current or recent mortgage arrears are generally viewed as a more significant concern than an older, unrelated consumer default, since it speaks directly to how you’re managing housing debt. This is typically a more specialist scenario, and it’s worth having an honest conversation about your specific situation, including how the arrears occurred and whether they’re now resolved.
5. How long after bankruptcy can I apply for a home loan?
Bankruptcy remains on your credit file for the later of five years from when you became bankrupt, or two years after it ends, and specialist lender policies exist for borrowers in this position. Timing matters considerably though, along with your conduct and financial position since discharge, so it’s worth discussing your specific dates and circumstances rather than assuming a fixed waiting period.
6. Will multiple loan applications hurt my chances if I have bad credit?
Yes, it’s worth being cautious here. Every credit application can appear on your file as an enquiry, and this information remains for five years. Applying with several lenders in a short space of time can make your file look riskier rather than improving your chances, so it’s better to identify a well-matched lender before lodging any application.
7. Will I definitely pay a higher interest rate with bad credit?
Generally, yes, though how much higher varies considerably depending on your specific situation. Pricing on adverse-credit lending typically reflects the severity and recency of the credit event, your deposit or equity, and your overall financial position, so an old, minor, resolved issue is likely to be priced quite differently to a current, more serious one.
The Bottom Line
There isn’t one lender out there who approves every borrower with bad credit, because “bad credit” itself covers a genuinely wide range of situations, each carrying a different level of risk. What actually determines your options is the specific type of issue on your file, how large and recent it is, whether it’s been resolved, your deposit or equity position, and how clearly you can explain what happened and why it’s unlikely to happen again. Getting a clear, honest picture of your actual credit file, rather than a vague sense that things are “probably bad,” is what turns this from an overwhelming search for a mythical lender into a genuinely manageable process of matching your real situation to the right policy.
