Bad Credit Home Loans: Can You Get One With a Default in 2026?

Bad Credit Home Loans: Can You Get One With a Default in 2026?

Yes, often you can. With a default, a past debt agreement or a discharged bankruptcy on your file, you’re what lenders call credit impaired, and the usual route is a specialist (non-conforming) or near-prime lender. Some mainstream lenders will still consider a small default that has been paid. Expect a higher rate than a standard loan, a bigger deposit and a closer look at your recent conduct.

What decides the answer is the detail on your credit report: what the listing is, how big it is, whether it’s paid and how long ago it happened. This guide covers what counts as bad credit, how long each item stays on your file and what different lenders look for. It also covers what these loans cost and how to move back to a mainstream rate once your file has recovered. It draws on our 25+ years of arranging loans across a panel of 52+ lenders.

What counts as bad credit in Australia?

There’s no single “bad credit” label in Australia. A lender reads your credit report and forms a view from what’s on it. The items that usually mark a file as credit impaired are:

• Defaults. A default can be listed when you owe $150 or more, the payment is at least 60 days overdue and the provider has sent you written notices asking for payment and warning that it may list the default (OAIC on repayment history and defaults).
• Late repayments. Your repayment history records each month you pay more than 14 days after the due date, on a scale of 0 to 7 showing how many months behind you were.
• Court judgments for unpaid debts, and serious credit infringements (sometimes called clearouts), where a provider has tried and failed to contact you about a debt.
• Personal insolvency. A debt agreement under Part IX of the Bankruptcy Act, a personal insolvency agreement under Part X, or a bankruptcy.
• Too many credit enquiries. Every application for credit is recorded. Several in a short space of time can look like repeated declines, even when they weren’t.

Some things are not bad credit. A financial hardship arrangement with your lender doesn’t lower your credit score. Having no credit file at all is a different problem again: someone who has never borrowed has no bureau file, so there’s nothing for a lender to score, good or bad.

How long does bad credit stay on your credit report?

Each type of listing has its own retention period under the credit reporting rules. The OAIC’s retention table sets them out, and we’ve summarised it here as at September 2026:

Paying a default doesn’t remove it. If you pay after it’s listed, the listing stays for the full five years but the provider must update it to show the payment was made. That update still matters, because some lenders treat a paid default differently to an unpaid one.

Bankruptcy has one more record to know about. Your name stays on the National Personal Insolvency Index permanently, even after the credit report listing drops off (AFSA on the consequences of bankruptcy). Lenders can search it, so it’s always better to disclose a past bankruptcy than to let the lender find it.

How to get your credit report at no cost

Pull your own report before any lender does. A credit reporting body must give you a copy of your consumer credit report without charge once every three months, and again if you’ve been refused credit in the past 90 days (OAIC on accessing your credit report). The two consumer credit reporting bodies listed by the OAIC are Equifax and Experian. They can hold different information, so request a copy from each.

When it arrives, check every listing is yours, the amounts are right and any paid default is marked as paid. If something is wrong, contact the credit provider or the credit reporting body. You can fix errors yourself at no charge, and accurate negative information can’t be removed by anyone, so be wary of companies charging to “clean” a file (Moneysmart on credit repair).

What mainstream and specialist lenders look for

Mainstream lenders, including the major banks, mostly want a clean file. Around half a dozen lenders on our panel will consider a paid default at their standard rates, usually a small one, often under $1,000, that has been paid in full and that you can explain. Some only accept utility or telco defaults, not finance defaults. An unpaid default rules out mainstream lenders, so it usually means a near-prime or specialist lender until it drops off your file.

Specialist and near-prime lenders read the detail and price for it. The same default can be a firm no at one lender and an approval at another, which is why matching the file to the lender is most of the work.

Paid versus unpaid defaults

A paid default is the easier conversation. Some mainstream lenders will consider a small default that has been paid, particularly an older one with a sound explanation. An unpaid default usually rules out mainstream lenders, and specialist lenders tend to treat it more strictly too. The near-prime lender described below waits longer before it will look at a large unpaid default than a paid one.

The size and age of a default

Size and time since listing decide which tier you fall into. One near-prime lender on our panel, for example, will consider defaults totalling up to $3,000, paid or unpaid, whenever they were listed. It considers larger defaults once they’ve been paid and listed for more than 12 months, or paid or unpaid after 24 months. Another specialist lender we use considers defaults, judgments and writs, and one past mortgage-arrears event. These settings differ between lenders and change often, so treat them as examples of how the market is tiered, not as a rule.

Your explanation letter

Expect to explain every listing in writing. A short, signed letter should say what happened, why, and what has changed since: a job loss followed by steady employment reads very differently to a bill that went to an old address. We’ve seen three mortgage enquiries in about two months, none of them a problem on its own, hold up a file until each one had a written comment. Write the explanation yourself rather than leaving the assessor to guess.

Bankruptcy, Part IX and Part X

While you’re bankrupt you must tell any credit provider about the bankruptcy if you apply for credit over a set amount, so a home loan isn’t realistic until it ends (AFSA on the consequences of bankruptcy). Bankruptcy normally lasts three years and one day, and once it has ended there’s no legal restriction on applying for credit, including a home loan (AFSA on life after bankruptcy). Whether a lender will say yes is a separate question.

Lender waiting periods vary widely. A handful of near-prime and specialist lenders on our panel will consider you from the day after discharge, one near-prime tier wants twelve months and a few want two years. Mainstream lenders generally wait until the bankruptcy has dropped off your credit report; one mainstream bank will consider you from two years after discharge at a maximum 80% LVR, a couple look at it case by case, and some will not look at it inside five years. A debt agreement is a formal way to settle most debts without going bankrupt, usually over up to three years (Moneysmart on bankruptcy and debt agreements). A few specialist lenders on our panel will look at a debt agreement that’s still running if your payments are up to date and the loan is paying it out, and more will consider one you’ve completed. Most specialist lenders will consider you from the day after completion, while the one mainstream bank with a published pathway wants two years since the debt was fully paid, at a maximum 80% LVR. A personal insolvency agreement is treated the same way.

Credit scores and enquiries

Australia has no legislated minimum credit score for a home loan. Scores run from zero to either 1,000 or 1,200 depending on the credit reporting body (Moneysmart on credit scores), and each lender sets its own cut-offs. Lenders also read different scores: some use one bureau’s score, some another, and a few non-bank lenders don’t use a credit score at all. For a client with a damaged score, that turns a decline into a question of which lender to approach first.

What does a bad credit home loan cost?

Specialist lenders use risk-based pricing: the more serious or recent the credit event, the higher the rate tends to be. Some also charge a one-off risk fee, which plays a similar role to lenders mortgage insurance. At least one near-prime lender on our panel charges no risk fee below 70% LVR. Others cut or waive it at lower LVRs from time to time, which is one reason a bigger deposit pays for itself.

We don’t quote a single “bad credit rate”, because there isn’t one. Pricing depends on the lender’s tier, your LVR and the listings on your file. What we can say is that the gap to a mainstream rate is the cost of the first year or two, and the plan should be to close it. Ask for every fee in writing before you apply, including any risk fee, so you can compare the full cost.

How much deposit do you need with bad credit?

Plan for a bigger deposit than a borrower with a clean file. Your LVR is the loan divided by the property value (our LVR explainer walks through the maths), and a lower LVR reduces the lender’s risk. In practice, plan on a deposit of at least 20% with an unpaid default or a recent credit event. A paid default can open a little more room at a few near-prime lenders, and a handful of specialist products go to 85%, with a couple reaching 95% on a purchase, with a risk fee or LMI. The rate and the risk fee both tend to fall as the LVR falls.

If you’re refinancing rather than buying, the same logic applies to your equity. For the general numbers on saving a deposit, see our guide to how much deposit you need for a house.

Refinancing back to a mainstream lender

Treat a specialist loan as the first step. The approach we use for buyers who want in now but can’t yet qualify with a mainstream lender is to start on a near-prime or specialist loan, keep every repayment on time for 12 months, then refinance to a lower rate.

Twelve months of on-time repayments is usually when the refinance conversation starts. Several major banks and a few non-bank lenders on our panel will refinance you after 12 months of clean repayments with a reduced assessment buffer, provided the rest of your file meets their credit policy, and for most of them that means a clean credit file. With an unpaid default or a bankruptcy still listed, most want 24 months or wait until the listing drops off.

Twelve clean months matters for two reasons. Your recent repayment history now shows a run of on-time payments, and many lenders read that conduct straight from your credit report. And at least one major bank assesses an external refinance with a buffer of around 1% on top of the rate, rather than the usual 3%, once the loan has run for 12 months with no arrears and a clean credit file. That lower buffer can lift your borrowing power enough to make the switch work.

How to strengthen your application

Small moves in the months before you apply can change which lenders will look at you:

1. Get both credit reports and fix any errors first.
2. Pay any default you can afford to clear, and keep the proof of payment.
3. Keep every repayment on time from today. Recent conduct carries a lot of weight on an impaired file.
4. Close unused credit cards or cut the limits. Lenders assess the full limit as if it’s drawn, whatever the balance.
5. Stop applying for credit. Each enquiry is recorded for five years, so apply once, to a lender that fits.
6. Clear a tax debt yourself before approval if you can. At least one lender will reconsider a file for its prime tier if the tax debt is cleared before formal approval, but keeps it in a lower tier if the debt is paid out of the loan proceeds.
7. Gather your paperwork early. Our document checklist covers the standard list, and you’ll add your explanation letter and any proof of paid defaults.

If other things are also making your application hard, such as self-employment, a new job or an unusual property, our guide to difficult home loans covers those situations.

If you’re struggling with repayments now

If the real problem is that repayments are hard to meet today, a new loan may not be the answer. Your lender must consider you for financial hardship assistance when you ask, and a hardship arrangement doesn’t affect your credit score. It shows on your report, but the listing is deleted after 12 months (Moneysmart on financial hardship). The first step is to contact your lender’s hardship team, and your lender must let you know the outcome in writing within 21 days (Moneysmart on problems paying your mortgage).

You can also call the National Debt Helpline on 1800 007 007. It’s a not-for-profit service offering confidential help with debt at no cost to you. If you can’t reach agreement with a lender, the Australian Financial Complaints Authority (AFCA) handles disputes. Sorting out a hardship situation first usually leaves you in a much better position to borrow later.

Frequently asked questions

Can I get a home loan with bad credit in Australia?

Yes, in many cases. Specialist and near-prime lenders regularly assess defaults, judgments, past debt agreements and discharged bankruptcies, and some mainstream lenders will consider a small paid default. Expect a higher rate and a bigger deposit than on a standard loan.

Can I get a home loan with a paid default?

Often, yes. A paid default stays on your credit report for five years but is marked as paid, and some lenders treat it more favourably than an unpaid one. Some mainstream lenders will consider a small, older paid default with a sound explanation.

How long do defaults stay on my credit file?

A default stays on your credit report for five years from when it was listed, even if you pay it. A serious credit infringement stays for seven years, and court judgments and credit enquiries for five.

Can I get a home loan after bankruptcy?

Realistically, not while you’re bankrupt, but once the bankruptcy ends there’s no legal restriction on applying for a home loan. Some specialist and near-prime lenders will consider a recently discharged bankrupt, while mainstream lenders generally wait until the bankruptcy has dropped off your credit report, though one mainstream bank will consider you from two years after discharge at up to 80% LVR.

Is there a minimum credit score for a home loan in Australia?

No. There’s no legislated minimum. Each lender sets its own cut-offs, lenders use different credit scores, and a few non-bank lenders don’t use a credit score at all.

How long until I can refinance a bad credit home loan to a bank?

Twelve months of on-time repayments is the earliest point the refinance conversation usually starts. How long it takes depends on what is still on your file, and an unpaid default or a recent bankruptcy can push it out well beyond that.

Talk to us about your credit file

A credit problem narrows your choice of lenders, but it rarely closes the door. We work across a panel of 52+ lenders, check how the ones that fit your file treat your specific listings, and plan the route back to a mainstream rate before you apply. If the honest answer is “not yet”, we’ll tell you that too, along with what to fix first. Speak to our mortgage brokers about your situation.

This article contains general information only and does not constitute financial advice. Your personal financial situation, objectives and needs have not been considered. Before acting on any information, you should consider its appropriateness to your circumstances. Speak to a qualified mortgage broker for advice tailored to your situation. Mortgage World Australia Pty Ltd is a credit representative (CR No. 396946) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).

Patrick O'Brien

Patrick is a Director and a Home Loan Specialist. He has been helping Australians with home loans since 2001. Prior to working as a mortgage broker Patrick was employed by Macquarie Bank for 3 years and also worked as an accountant for a publicly listed company. Patrick’s qualifications include:

Bachelor of Business, UTS Sydney. Majored in accounting and sub-majored in Finance and Marketing.
Diploma of Finance and Mortgage Broking Management FNS50310
Certificate IV in Financial Services (Finance/Mortgage Broking) FNS40804