Key Takeaway
Having bad credit doesn't mean you can't get a home loan in Australia — but it does change your options, your interest rate, and the deposit you'll need. The fastest path to a better home loan isn't waiting five years for a default to fall off. It's finding out whether that default can be removed now, so you can access mainstream lenders and save tens of thousands over the life of your loan.
When the Broker Says "There's a Problem"
You've finally found it. The house you've been scrolling through Domain for months to find. The one with the backyard your kids would actually play in, the kitchen that doesn't need ripping out, the street that feels like somewhere you could stay for the next twenty years. You call the broker, excited, ready to get the ball rolling. And then they say it.
"There's a default on your credit file. We've got a problem."
Your stomach drops. Maybe it's a telco bill from three years ago you forgot about. Maybe it's a joint account from a past relationship. Maybe you genuinely have no idea where it came from. But the broker's tone has already shifted. Suddenly the conversation isn't about deposits and settlement dates — it's about waiting periods and specialist lenders and interest rates that make your eyes water.
If this sounds familiar, take a breath. You're not the first person to sit at that kitchen table feeling like the rug's been pulled out from under you. And the situation is almost certainly not as hopeless as it feels right now.
What Lenders Actually Look At
Before we talk about solutions, let's clear up what's actually happening behind the scenes when you apply for a home loan. Lenders aren't just looking at one number. They're looking at a combination of factors, and understanding these gives you power.
Your Credit Score
In Australia, your credit score is a number between 0 and 1,200 (on the Equifax scale). Most mainstream lenders want to see a score above 600. Some premium lenders want 700+. But here's what most people don't realise: your score is just a starting point. A lender can — and does — look deeper than the number.
Defaults and Negative Listings
This is the big one. A default on your credit file is a red flag for lenders because it tells them you've failed to meet a financial obligation in the past. Defaults stay on your file for five years from the date of listing, and during that time, most mainstream lenders won't touch your application.
The size of the default matters too. A $300 phone bill default is treated very differently from a $15,000 credit card default. And whether it's paid or unpaid makes a difference — though not as much as people think.
Credit Enquiries
Every time you apply for credit, it leaves a mark on your file. Too many enquiries in a short period tells lenders you're either desperate for credit or being knocked back elsewhere. Both are bad signals. This is why it's critical not to shotgun applications to every lender you can find.
Serviceability
Even with perfect credit, you won't get approved if you can't demonstrate the income to service the repayments. Lenders look at your income, existing debts, living expenses, and dependents. They stress-test your ability to repay at a rate typically 2-3% above the actual loan rate.
Why This Matters More Than You Think
Here's the part that keeps people up at night. The difference between a clean credit file and one with a default isn't just "approved" or "declined." It's the cost of borrowing over the life of your loan.
A mainstream lender might offer you a home loan at 6.2%. A specialist bad credit lender might offer you the same loan at 8.5% or higher. On a $500,000 loan over 30 years, that difference adds up to more than $200,000 in extra interest. That's not a typo. Two hundred thousand dollars, because of a listing on your credit file that might not even be valid.
Then there's the deposit. Mainstream lenders will often accept 5-10% deposits, especially with Lenders Mortgage Insurance. Specialist lenders typically want 15-20% minimum. On a $600,000 property, that's the difference between needing $30,000 and $120,000.
This is why "just wait five years" is such expensive advice. Every month you wait is a month of rent you're paying instead of building equity. Property prices don't wait for your credit file to clear.
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Common Myths About Bad Credit and Home Loans
Myth: You Need Perfect Credit for a Home Loan
Not true. Different lenders have different risk appetites. While the big four banks tend to be stricter, there are dozens of non-bank lenders and credit unions with more flexible criteria. You don't need a perfect score — you need to know which lender matches your situation. A good broker who understands credit issues can make all the difference.
Myth: Paying Off a Default Removes It from Your File
This is one of the most common misunderstandings we see. Paying a default changes its status from "unpaid" to "paid," but it stays on your credit file for the full five years from when it was originally listed. A paid default looks better than an unpaid one, but it's still a default. The only way to truly remove it is to have it investigated and deleted based on the credit provider's failure to comply with the law.
Myth: All Lenders Have the Same Credit Requirements
Lenders vary enormously in how they assess credit risk. Some reject anyone with a default in the past five years. Others will consider you if the default is over 12 months old and under a certain dollar amount. Some will even look past multiple defaults if your current income and savings are strong. The lending landscape in Australia is far more diverse than most borrowers realise.
Myth: A Low Score Means You'll Never Own a Home
A low credit score right now doesn't mean a low credit score forever. Credit scores are dynamic. Remove a default and your score can jump significantly — sometimes by 200 points or more — within weeks. Many of our clients go from being told "come back in two years" to receiving unconditional approval in a matter of months.
What Can Actually Be Done About It
Now for the part you've been waiting for. If your credit file has issues and you want a home loan, you've essentially got three paths. The right one depends on your specific situation.
Path 1: Get Invalid Listings Removed
Under the Privacy Act 1988 and the National Credit Code, credit providers must follow strict procedures before listing a default on your credit file. They must send you a written notice to your last known address. They must give you at least 14 days to remedy the situation. The amount must be over $150 and at least 60 days overdue.
If any of these steps weren't followed correctly, the default is technically invalid and can be removed. And in our experience, a significant number of defaults don't meet these legal requirements. Notices sent to the wrong address. Incorrect amounts. Missing documentation. These aren't technicalities — they're legal protections that exist for a reason.
Our default removal service investigates every listing on your file to determine whether the credit provider complied with the law. If they didn't, we pursue removal through formal channels.
Path 2: Improve Your Credit Score Before Applying
Even if you can't get a listing removed, there are concrete steps that can lift your score before you apply. Pay down credit card balances below 30% of the limit. Clear any outstanding debts. Limit new credit applications. Make sure your personal details are correct and consistent across all three bureaux — Equifax, Experian, and illion.
Small things add up. Correcting errors on your file, closing unused accounts, and demonstrating consistent repayment behaviour over even a few months can make a meaningful difference to your score.
Path 3: Work with a Specialist Lender (as a Last Resort)
If your credit file has issues that genuinely can't be resolved in a reasonable timeframe, specialist lenders exist for exactly this situation. They'll charge higher rates and require a larger deposit, but they can get you into a property. The strategy then is to refinance to a mainstream lender once your credit file improves — typically within 12 to 24 months.
But this should be Plan C, not Plan A. The interest rate premium is real money, and it's worth exhausting your options for credit repair before committing to a more expensive loan.
Expert Tip from Elisa
"Don't apply to multiple lenders hoping one will say yes. Every application creates a credit enquiry on your file, and too many enquiries make your situation worse. Get your credit file assessed first, understand exactly what you're dealing with, and then approach the right lender once — not ten lenders and hope for the best."
What Different Lenders Actually Require
Understanding the lending landscape helps you target the right lender for your situation, rather than wasting applications (and credit enquiries) on lenders who were never going to approve you.
| Lender Type | Credit Score | Defaults Accepted? | Typical LVR | Rate Premium |
|---|---|---|---|---|
| Big 4 Banks | 650+ | No active defaults | Up to 95% | Lowest rates |
| Non-Bank Lenders | 550+ | Paid defaults >12 months old | Up to 90% | +0.5-1.5% |
| Specialist Lenders | No minimum | Yes, including unpaid | Up to 80% | +2-5% |
| Private Lenders | Not assessed | Yes, any type | Up to 65% | +5-10% |
The table makes one thing clear: the cleaner your credit file, the less you pay. Moving from a specialist lender to a non-bank lender — or better yet, a mainstream lender — can save you hundreds of thousands over the life of your loan.
A Real Scenario: From Knocked Back to Keys in Hand
Composite case study based on real client outcomes:
Mark and Sarah found a three-bedroom home in Brisbane's outer suburbs. Their broker ran a credit check and found a $2,400 default on Mark's file from a mobile phone contract that had been sent to the wrong address after they moved. The default was three years old, and Mark had never received any notice about it.
Their broker told them to "come back in two years" once the default aged off. But two years of renting at $650 a week would cost them $67,600 — not to mention the property price increases they'd likely face.
Instead, they came to us. We investigated the default and found that the credit provider had failed to send the required Section 6Q notice to Mark's current address, as required under the Privacy Act 1988. We lodged a formal dispute, and the default was removed within six weeks.
With the default gone, Mark's credit score jumped from 480 to 670. They reapplied through a mainstream lender and received unconditional approval eight weeks after their initial knockback. The interest rate? 2.3% lower than the specialist lender they'd been quoted. Over the life of their loan, that saves them approximately $185,000.
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What To Do Next: Your Action Plan
If you've been knocked back for a home loan or you're worried about what your credit file might say, here are the practical steps to take right now.
Step 1: Get Your Credit File
Request a free copy of your credit file from all three bureaux — Equifax, Experian, and illion. You're entitled to a free copy every three months. Read every listing carefully. Note any defaults, missed payments, or credit enquiries you don't recognise.
Step 2: Get a Professional Assessment
Before you apply to any lender, understand exactly what's on your file and whether it can be challenged. Our free credit assessment analyses your entire credit file and identifies any listings that may be eligible for removal. There's no cost and no obligation.
Step 3: Fix What Can Be Fixed
If there are invalid or incorrectly listed defaults on your file, get them removed before you apply for finance. This is where professional credit repair for home loan approval makes the biggest difference. Removing even one default can move you from specialist lender territory to mainstream approval.
Step 4: Strengthen Your Application
While your credit file is being repaired, work on the other parts of your application. Save a larger deposit if you can. Pay down existing debts. Keep your employment stable. Document your income thoroughly. Every improvement helps.
Step 5: Apply to the Right Lender
Don't shotgun applications. Work with a broker who understands credit-impaired borrowers and can match you to the right lender first time. If you're a first home buyer with credit issues, there are specific programs and grants that may still be available to you.
Important
Every credit application leaves an enquiry on your file. Multiple applications in a short period can actually lower your score further and signal desperation to lenders. Get your file assessed and repaired first, then apply once to the right lender. It's always more effective than the "apply everywhere and hope" approach.
Key Stat: We have a 98% success rate when we take on cases — because we only accept cases where we've identified legitimate grounds to challenge the listing.
Frequently Asked Questions
What Our Clients Say
928+ verified reviews from real clients
"Elisa and her team are absolutely brilliant. They helped me understand my credit file and removed an incorrect listing. My mortgage application was approved within weeks!"
"Absolutely fantastic service! They helped me remove two defaults that were stopping me from getting a home loan. Now I'm in my dream home. Can't thank them enough!"
"They managed to remove my default quickly, which is truly impressive. Their efficiency and dedication exceeded my expectations. I highly recommend Australian Credit Solutions."
"I'm really happy with the service I received. The team was very supportive throughout the process, and the consultant was professional and helpful. Highly recommend their team."
Elisa Rothschild
(BA/LLB)Principal Solicitor & Director
With over 12 years of experience in credit law, Elisa has helped thousands of Australians remove unfair credit listings and rebuild their financial futures. She leads Australian Credit Solutions' legal team with a focus on consumer advocacy and regulatory compliance.
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