If you have a bad credit history, applying for a home loan can feel overwhelming—but it’s not impossible. Many Australians with defaults, missed payments, or even discharged bankruptcies have successfully secured finance with the right support and guidance.
If I don’t read the rest of the article what should I do?
The number 1 thing I tell all my clients is make the minimum repayments on time! Banks want to see that you can at least make your current minimum repayments on time – typically for a period of 6 months. For missed repayments, defaults or poor account conduct prior we may be able to justify why that was the case and how you are now in a position to meet your obligations. However, time and time again we see clients who we advise we can definitely help you but you just need to make the minimum repayments on time, yet they struggle to. Getting someone in this position additional credit also goes against the Best Interest Duty mortgage brokers are bound to as it is typically not in someone’s best interest to get them additional lending if they are already struggling with their currently lending.
What Is Considered Bad Credit History?
Bad credit usually refers to a history of:
- Late repayments on loans or credit cards
- Defaults or judgments
- Part IX Debt Agreements
- Bankruptcy (even if discharged)
- Low credit score
These records can impact your credit score, which lenders use to assess your risk as a borrower.
Typically lenders look for a credit score of 500 minimum with no recent defaults & no past judgements & bankruptcies
Where to start?
Where to start can be confusing but the best way to start is by assessing what the reason for the bad credit. Equifax, illion & Experian are the three main credit reporting bodies in Australia. They all offer credit checks which can be done for free once every few months OR typically for free when a recent credit application has been declined.
It is important to note that whilst Equifax, illion & Experian offer free credit checks. the results you will get are typically different from the search results banks and credit providers use. For the most accurate result, ask your mortgage broker for a free credit check. Due to NCCP compliance they won’t be able to share the file with yourself but they can definitely advise you of the finding, the issues and how to go about solving them.
Typically a free credit check through Equifax, illion or Experian will not impact your credit file, nor will a credit check through a registered mortgage broker. This should give you comfort knowing you are not damaging your credit file further.
Based on the issue your mortgage broker can advise what steps to take. It could be as simple as providing some commentary with a lender who is happy to provide an exemption. There are a number of lenders who don’t look at your credit file & are still able to provide great rate, fees & products – with some having better offerings than the big 4 banks. Getting a lending solution from these lenders could be an easy solution.
Should I go to a credit repair agency first?
A credit repair agency can help you to fix your credit file. However, it once again comes down to what the issue is. If it is only due to a low credit score there are lenders who can still take you on and provide market rates, fees and products as long as you can provide a suitable explanation. This way you can save your money. However, a credit repair agency may be a good idea if only non-bank lenders will lend to yourself at high rates & fees. A credit repair agency may be able to open more lender options to yourself.
We always recommend, if there is a suitable lender who is willing to take you on with a great rate, fee & product, then there is no need to repair your credit history. Some lender
What if I need LMI?
Needing LMI (Lenders Mortgage Insurance) adds another layer of complexity typically because, not only does the lender have to be satisfied with your credit history but so does the LMI provider. Typically the LMI providers and QBE, Helia & Genworth.
This means that even if you were to go to a lender who either didn’t check your credit file, or accepted your poor credit history, you may still be declined due to the LMI provider not accepting your credit history. However, there are a few way to get around this.
- Going to a non-bank lender who don’t use an LMI provider but rather a risk fee
- Going to a lender such as ANZ or Macquarie who are self-insured and therefore do not have an extra layer of complexity
- If your credit history isn’t a large error such as a major default, potentially an LMI provider may be able to accept you.
However, this again comes down to the situation that you are in and working with a mortgage broker to find a suitable solution.
What is the most common mistake?
The most common mistake is making multiple enquiries. This is typically by someone who is potentially shopping around for the best personal loan rate or credit card and going to multiple lenders all in the span of a few days. These types of enquiries and frequency of enquiries can bring down your credit score. It’s a fairly common issue seen especially in younger people. However, it is not a major issue typically.
How long is something on my credit file?
Enquiries, previous credit products, defaults & judgements typically stay on a persons credit file for 5 years. After it drop’s off. However, bankruptcies remain on the public registrar and are typically unable to be removed.
I’ve been bankrupt or had a Part 9/10 agreement. Does that matter?
Yes it does! Bankruptcies and Part 9/10 agreements go onto the public registrar & are almost impossible to remove. This is something you should disclose to your lender straight away. Even though it may not be in the credit file as it typically would drop off after 5 years, lenders will still find it when they do their checks. So it is better to disclose this to your broker or lender so they can find a suitable lender for yourself.
2 case studies
Case Study 1 – Client didn’t realise he was in default by 4 months
We had a client who had a NAB Buy Now Pay Later with a limit of $1,000. When we first did the credit check, it looks as though he was in arrears for 4 months. When asked he mentioned that he didn’t get any statements so didn’t realise he was in arrears. He is the type of person that he will pay of an account in full but typically waits for the statements to arrive. It turned out that NAB had changed to digital statements and the client wasn’t aware this happened, hence didn’t realise there was anything owing. We took this to Macquarie who realised the issue was an unintentional oversight as the client had over $70,000 in savings and did not have any other defaults and was able to take this client on board even though he was 4 months in arrears on a his NAB Buy Now Pay Later.
Case Study 2 – Late payments on mortgage repayment for 10 out of 12 months
A client was getting a second investment home with NAB. One his current investment home that already had a NAB mortgage the client was consistently paying the mortgage 1 or 2 days late. He wasn’t aware that the missed repayments would have a significant impact on his future applications. Though this wasn’t seen on his credit file due to not being late enough to be shown as arrears, the NAB assessor did pick up on this and asked why the client 10 or the last 12 mortgage repayments a few days late. The client explained that he wasn’t proactive with his finances and typically would wait until he got a reminder text saying that he missed a repayment to repay. As he was only late by a few days and did have significant savings, the assessor was able to approve the application with client declaration stating he would be more proactive in the future.
Not only does missed repayment show poor account conduct, as interest is charged daily it results in more interest paid over the loan term. Read more here!
