How to get a home loan with bad credit history

If you’re worried your past money hiccups will stop you from buying a home, you’re not alone. Around 10% of Australians have a below-average credit score. 

However, there are many things you can do to improve your credit score or get approved for a home loan, even with a below-average credit score. It usually requires working with specialist lenders who look beyond a single credit score and consider the whole picture. 

In this guide, we explain what “bad credit” really means, how to read your credit report, and the practical steps to help you get a home loan—even if you’ve missed payments, paid defaults, or have a poor credit score.

What is bad credit?

It’s easy to assume bad credit means someone has been financially irresponsible. The truth is, most bad credit borrowers have experienced unexpected life events like job loss, illness, or divorce that left a mark on their credit history.

In fact, if you’ve ever missed a payment, it’s likely been recorded in your credit history. 

“Bad credit” means your credit file shows events that increase a lender’s risk, such as:

• Missed payments on loans, bills or credit cards
• Too many liabilities or multiple loans with limited assets
• Defaults or bankruptcies
• Company financial troubles (administration or liquidation)
• Excessive credit enquiries

The good news is that many specialist lenders offer bad credit mortgages designed to consider your overall financial situation today, not just past mistakes.

Understanding your credit score

Your credit score is calculated from data in your credit report held by a credit reporting body, like Experian, Equifax, or Illion. Lenders assess it when deciding whether to approve a loan.

A “below overage” credit score varies between reporting bodies. See the breakdown below: 

• Experian: 0 to 549 is a bad credit score
• Equifax: 0 to 459 is a bad credit score
• Illion: 1 to 299 is a bad credit score

A stronger score can mean better interest rates, higher loan amounts, and faster home loan approval. But even with a bad credit score, you may still be able to secure a loan with bad credit through non-conforming loans.

You can request your credit report for free every 12 months. Check it carefully for errors, like: 

• All accounts, debts and addresses listed belong to you
• Paid defaults are clearly marked as “paid”
• Old or incorrect details are corrected promptly

Incorrect listings can unfairly lower your credit rating. If you find an issue, contact the provider or credit reporting body to have it fixed.

How to get a mortgage with bad credit

It’s easy to feel hopeless if you’ve been declined by traditional lenders. In reality, many specialist and non-bank lenders will take a broader view of your financial position. They are more willing to listen to your side of the story on what went wrong with your finances in the past, and consider how a home loan could benefit you.

Bad credit home loans may be an option if you can show:

• Evidence of improved repayment habits
• Stable employment or income
• Reduced outstanding debts
• A clear plan for debt consolidation.

Expect different lenders to price for risk. Higher interest rates and fees may apply initially, but many borrowers refinance into standard loans after 12–24 months once their credit history and loan balance improve.

Applying for a home loan with bad credit

Applying for a home loan with bad credit is not straightforward. A qualified mortgage broker can help you:

• Identify lenders most likely to approve your application.
• Present your credit history in the best possible light.
  
• Avoid unnecessary applications that could further harm your credit file.

There are also important steps you can take to strengthen your application: 

• Documents that prove stability: Recent bank statements, payslips (or BAS if you’re a self-employed applicant), ATO notices, and details of your employment status.
• Show genuine savings: Regular contributions into a savings account demonstrate discipline.
• Reduce unsecured debt: Pay down credit cards and personal loans where possible.
• Explain your story: Provide a short letter outlining what caused your credit issues and why they won’t recur.
• Consider a larger deposit: A lower loan-to-value ratio (LVR) reduces risk and boosts approval chances.
• Guarantor support: A family member—usually a parent—may be able to help, though this carries obligations and risks.
• Understand fees: Some loans include early repayment fees or higher comparison rates—make sure you know the total interest payable.

If paperwork is limited (common for business owners), a low-doc home loan may be available. These carry different lending criteria and higher interest rates.

FAQs

What types of bad credit do lenders consider?

Everything from missed payments and paid defaults to discharged bankruptcy can be considered by some providers. The older and better-managed the event, the more options you may have.

Will I have to pay more?

You may face higher interest rates and fees at first, but once your credit rating and LVR improve, you should aim to refinance to standard loans.

How much can I borrow?

Loan amounts vary widely. Lenders assess income, expenses, deposit, property type, LVR, and the state of the property market. A broker can outline realistic ranges before you apply.

I’m self-employed—what then?

Self-employed applicants may use alternatives like accountant letters and BAS in place of traditional payslips. Some lenders offer low-doc home loan options with specific eligibility criteria.

What if the big banks said no?

There are many different lenders beyond the big banks. Non-bank lenders and specialist lenders regularly approve borrowers, while the majors decline.

Get in touch today

It has never been a better time to take control of your financial situation. Call (02) 4018 7505 to make an appointment and speak with our mortgage brokers, Nestor Ramirez and Gary Gilbert. Alternatively, book your FREE discovery call online to discover your options. Our team will compare interest rates across different lenders, manage your loan application from start to finish, and help you plan a path to sharper finances over time.

Disclaimer

Watson Mortgages Pty Ltd (Nestor Ramirez Credit Representative Number 378816) is authorised under Australian Credit Licence 389328. Watson Mortgages Pty Ltd ABN 29 642 538 967 is a separate entity to Elliot Watson Financial Planning Pty Ltd.  Elliot Watson Financial Planning Pty Ltd is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply. Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.