What Is Considered 'Bad Credit'?
Have you ever missed a payment on bills, credit cards, mortgages, or any other type of debt? Lenders take note of these missed payments on your credit file, but don't let that discourage your dreams of obtaining a home loan. Here's what lenders typically consider as bad credit:
Bad credit history
Adverse listings such as defaults, bankruptcy, judgments, court writs, or excessive credit inquiries can raise concerns, but they don't automatically disqualify you from getting a home loan.
Lender credit history
Although your past credit history with a specific lender may be taken into account, having a bad history doesn't necessarily mean you're ineligible for a home loan.
Unpaid bills or taxes
Outstanding bills like council rates or tax bills may be considered, but they can often be explained and resolved.
Mortgage arrears
Lenders may be cautious if you've missed any mortgage payments within the last six months.
Company in financial trouble
If you're a director of a company facing financial difficulty, it doesn't necessarily reflect poorly on your personal credit history.
Overcommitted
While having numerous debts or a negative net worth may be concerning, there are still options available to help you secure a home loan.
Getting Approved for a Bad Credit Home Loan
Securing a home loan with bad credit requires applying with the right lender. While major banks and lenders may have strict lending policies, there are non-conforming and specialist lenders who offer a more flexible approach. At Financebetter, we have a team of dedicated bad-credit mortgage brokers with extensive experience. Our senior brokers have worked in the credit departments of major banks, enabling them to build a strong case for bad-credit home loans.
What Are Bad Credit Home Loans?
In Australia, bad credit mortgages are offered by non-conforming or specialist lenders. These types of mortgages consider all situations, especially those where borrowers have blemishes on their credit files. They are designed to cater to applications that don't meet the traditional guidelines of banks.
What Are the Types of Bad-Credit Home Loans?
Home Loan With Defaults
These bad credit home loans are available to borrowers who have defaults on their credit files. In Australia, lenders generally consider two types of defaults:
- Paid defaults: Defaults that have been fully paid.
- Unpaid defaults: Defaults that haven't been paid in full.
A default refers to an overdue account, such as a personal loan, credit card bill, utility bill, or phone bill. If a payment is 60 days late or the lender has been unable to contact you, it is considered overdue. Most major banks may decline your application if you have a default on your credit file, as it indicates your inability to repay debts.
Benefits of Bad Credit Home Loans
Opting for a bad-credit home loan can provide several advantages:
- Your application isn't automatically declined based solely on your credit history. Lenders and mortgage brokers will closely assess your circumstances and review your application on its merits.
- You can secure a property without waiting for your credit score to improve, preventing you from missing out on opportunities.
- Making regular repayments on your mortgage can help build your credit. Once you have a proven track record of timely repayments with no arrears, you can refinance to a better interest rate.
- It gives you the opportunity to repay your bad debts and improve your credit file.
- While the interest rates on bad-credit home loans are higher than average to compensate for the lending risk, at Financebetter, we consider bad-credit home loans as short- to medium-term solutions. Our goal is to set up these loans with the intention of refinancing to a new lender in a few years when your credit history is clear.