Can You Use the First Home Guarantee Scheme with a Default on Your Credit File?

Quick Answer: The First Home Guarantee Scheme (FHBG), administered by Housing Australia, does not set its own credit score minimum — but the participating lender still runs a full credit assessment before approving your home loan. A default on your credit file under Australian law can lead lenders to decline your application even if you otherwise qualify for the scheme. If the default was listed incorrectly, disputing it under the Privacy Act 1988 before applying may significantly improve your chances.

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You've done the maths. You've saved a 5% deposit. You've been researching the First Home Guarantee Scheme and now you're wondering whether a default from a few years back — perhaps from a phone contract, an energy bill, or an old credit card — will block your application. It might. Whether it does depends on what's actually on your credit file, how that listing got there, and whether it should be there at all.

What Is the First Home Guarantee Scheme and Who Runs It?

The First Home Guarantee Scheme is an Australian Government initiative administered by Housing Australia. It allows eligible first home buyers to purchase property with a deposit of as little as 5% without paying Lenders Mortgage Insurance (LMI). The government guarantees the difference between your deposit and the standard 20% threshold — a saving that can run into tens of thousands of dollars upfront.

From 1 October 2025, Housing Australia removed the income cap requirements that previously limited access to the scheme. The FHBG is now open to all eligible first home buyers regardless of taxable income. Core eligibility criteria remain: you must be an Australian citizen, have never previously owned or held an interest in residential property in Australia, and intend to occupy the property as your principal place of residence. Property price limits still apply and vary by state, territory, and region — check Housing Australia's current guidelines for the figure that applies where you're looking to buy.

Does the First Home Guarantee Scheme Have a Credit Score Cut-Off?

The First Home Guarantee Scheme sets no minimum credit score and no blanket rule about defaults. Housing Australia administers the guarantee — but the credit assessment is left entirely to the participating lender, using its standard home loan criteria. This is a critical distinction: your access to the scheme depends on what the lender sees in your credit file and serviceability assessment, not on a threshold set by the government.

Every participating lender has its own credit policy. Most apply the same standards they use for any home loan: income stability, existing debts, employment history, and any adverse credit listings — including defaults, court judgements, or serious credit infringements under the Privacy Act 1988 (Cth). To understand how a specific lender will treat your file, ask them directly or speak with a mortgage broker accredited for the scheme.

For background on how lenders use credit scores in home loan decisions, our guide to credit score requirements for home loans in Australia covers the key thresholds.

How Does a Default on Your Credit File Affect a FHBG Application?

A default is a credit listing that records your failure to repay a debt of $150 or more after the creditor issued the required notices under the Privacy Act 1988. Under the Privacy (Credit Reporting) Code 2025, a default stays on your Australian credit file for 5 years from the date it was listed.

Most mainstream lenders — including the banks and non-bank lenders that participate in the FHBG — will decline a home loan application that shows an active, unpaid default, particularly a recent one. The government's guarantee eliminates LMI; it does not override the lender's credit risk assessment. You can be fully eligible for the scheme and still be declined because of what's on your file.

If you are applying as part of a couple, both applicants' credit files are assessed. A default on either file can affect the application outcome.

Our broader guide to home loans with bad credit in Australia covers the wider range of options when defaults or credit issues are in the picture.

What Types of Default Concern Lenders Most?

Not all defaults carry equal weight. Lenders distinguish between them on several factors:

As OAIC guidelines confirm, a credit reporting body must hold accurate and complete information. If any detail in that table is wrong on your listing — wrong amount, wrong date, wrong creditor name — the listing may be disputable.

What If Your Default Was Listed Incorrectly or Without Following the Law?

Under Part IIIA of the Privacy Act 1988 (Cth), a creditor must follow a strict process before listing a default. Section 21D requires the creditor to send a written notice to your last known address, giving you at least 14 days to respond or pay before the listing is made. A default can only be listed for a debt of at least $150 that has been overdue for at least 60 days.

If the creditor did not follow that process correctly — or if the listing is wrong in any material way — you have grounds to dispute it. Common grounds include:

• The s 21D notice was never sent, or was addressed to an old address you had already left
• The amount is wrong — even a slight overstatement can be grounds under the Privacy Act
• The debt was already paid before the listing date
• The debt was never yours (identity confusion, or a joint account you had closed)
• Wrong name or contact details on the listing
• Listed before the 60-day overdue threshold — premature under Australian credit reporting rules

You can dispute the listing yourself directly with the credit reporting body (Equifax, Experian, or illion). The body must complete its investigation within 30 days under the Privacy (Credit Reporting) Code 2025. If the creditor cannot substantiate the listing, it must be corrected or removed. Where the creditor is unresponsive or the matter is not resolved, you can escalate to an external dispute resolution scheme.

For complex cases — particularly where procedural breaches are involved — Australian Credit Solutions can investigate and manage the dispute on your behalf under ACL 532003. Whether a listing is removed depends on what the investigation reveals and the creditor's response; outcomes are never guaranteed.

If a Default Is Removed, How Does That Change Your FHBG Application?

Removal changes your risk profile in a way that lenders notice. Without the adverse listing, your credit score typically improves, and the file the lender reviews no longer contains the event that would previously have prompted a decline.

The timeline varies by lender. Some will consider your FHBG application immediately after a removal, especially if the default was the only adverse event on file. Others prefer a clean credit period of 3–6 months before approving a loan at 95% loan-to-value. Check with the participating lender or a mortgage broker about their specific policy — and confirm the listing has been removed from all three bureaus before applying.

What to Do Before You Apply for the First Home Guarantee

1. Get your credit files — request a free report from Equifax, Experian, and illion. You're entitled to one free copy per year from each bureau, and they may each hold different information.
2. Check every listing carefully — look at the creditor name, debt amount, listing date, and whether the s 21D notice process was correctly followed. Any inaccuracy is worth noting.
3. Dispute anything that is wrong — lodge a dispute with the credit reporting body, or engage a credit repair specialist for cases where the creditor is uncooperative or the dispute is complex.
4. Talk to a participating lender or accredited broker — confirm their specific credit policy for the FHBG before assuming approval.
5. Check serviceability separately — the scheme covers deposit and LMI; income relative to debts is still the lender's own assessment.

If you are managing existing debts alongside this process, the National Debt Helpline on 1800 007 007 offers free, confidential financial counselling.

If an incorrect default is standing between you and your first home, find out where you stand with a free credit assessment from Australian Credit Solutions. We review your file, identify any procedural breaches, and tell you plainly what is disputable and what is not.

Frequently Asked Questions

Does the First Home Guarantee Scheme check your credit file? The First Home Guarantee Scheme, administered by Housing Australia, does not perform its own credit check — but the participating lender does. Every FHBG application requires full lender credit assessment under standard home loan criteria, including a review of your Australian credit file for defaults, enquiries, and repayment history information under the Privacy Act 1988.

Can you apply for the FHBG if you have an unpaid default on your credit file? You can submit an application, but most participating lenders will decline a home loan that includes an active unpaid default. In Australia under the Privacy Act 1988, an unpaid default stays on your credit file for 5 years and signals an unresolved debt — lenders treat this as a significant risk indicator, making approval under the scheme unlikely without a clean file.

Does a paid default affect your eligibility for the First Home Guarantee? A paid default remains visible on your Australian credit file for 5 years from the original listing date under the Privacy (Credit Reporting) Code 2025. Lenders can still see it and will factor it into their assessment. Most lenders view a paid default more favourably than an unpaid one — but it is not invisible, and its impact depends on the listing's age and your overall credit file.

How long after a default must I wait before applying for the FHBG? There is no waiting period set by the First Home Guarantee Scheme itself. The timeframe is governed by the participating lender's own credit policy, not Housing Australia. Some lenders will assess an application 12–24 months after a default is settled; others require a longer clean period before they will approve a 95% LVR loan. Ask the lender or broker directly.

Will removing a default improve my chances of qualifying for the First Home Guarantee? Removing a default improves your credit profile by eliminating the adverse listing that would typically prompt a lender to decline your application. Australian Credit Solutions can investigate whether a default was listed in accordance with the Privacy Act 1988 — if it was not, we dispute it on your behalf. Outcomes depend on the individual file and the creditor's response.

Can I dispute an incorrect default to improve my FHBG eligibility? Yes. Under Part IIIA of the Privacy Act 1988 (Cth), you have the right to dispute an inaccurate, incomplete, or unlawfully-listed default with the credit reporting body and the original creditor. The reporting body must complete its investigation within 30 days under the Privacy (Credit Reporting) Code 2025. A listing that cannot be substantiated by the creditor must be corrected or removed.

What deposit do I need for the First Home Guarantee Scheme? The First Home Guarantee Scheme allows eligible first home buyers to purchase with a minimum 5% genuine deposit without paying Lenders Mortgage Insurance. Housing Australia guarantees the remaining portion up to 20%, reducing the lender's exposure and removing the LMI cost. Standard lender credit and serviceability assessment still applies to every FHBG application.

Are there income limits for the First Home Guarantee Scheme in 2026? Income limits for the First Home Guarantee Scheme were removed from 1 October 2025, making the scheme open to all eligible first home buyers in Australia regardless of income level. Property price limits still apply and vary by state, territory, and region — check Housing Australia's current schedule for the applicable cap in your target location.

Does the FHBG cover properties in regional Australia? Yes. The First Home Guarantee Scheme covers both metropolitan and regional properties across Australia. Property price caps are set separately for major cities, regional centres, and other regional areas under Housing Australia's guidelines — regional caps are generally lower than metropolitan ones. Confirm the applicable figure for your target area before you start looking.

What is the difference between a paid and unpaid default for a FHBG home loan application? Both a paid and an unpaid default appear on your Australian credit file for 5 years from the listing date under the Privacy Act 1988. An unpaid default signals an unresolved debt obligation — most lenders treat this as a hard barrier. A paid default signals the debt was eventually settled, which lenders typically weigh more leniently, though it remains adverse credit information visible to every lender until the 5-year period expires.

Getting Your First Home Without the Default Holding You Back

The First Home Guarantee Scheme has removed income barriers and lowered the deposit threshold further than almost any point in recent memory. What remains as the key hurdle for many first home buyers is a credit file that has not been reviewed — sometimes because of a listing that should not be there at all.

If a default is holding you back, the first question worth asking is whether it was listed correctly. Book a free credit assessment and let us look at what is on your file.

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Australian Credit Solutions Pty Ltd holds Australian Credit Licence ACL 532003. Credit repair services are subject to individual assessment. Results may vary. This article provides general information only and does not constitute legal or financial advice.

Related reading: Home loan with a paid default → | Home loan after default removal → | Credit score for a home loan →