Paid and unpaid defaults

What is a credit file default?

A default is a record on your credit file that you have an overdue account such as a loan, credit card, utility bill or phone contract. It is classed as being overdue if the payment is 60 days late OR if the lender has been unable to contact you.

Defaults are lodged on your credit file with Veda Advantage and this information is accessed by lenders when you apply for a loan. We can help you to get approved for a home loan even if you have a few defaults. Read on to find out how!

If all of your defaults are paid

Believe it or not, we can actually help you to apply for a competitive home loan with a bank if you have paid all of your defaults! This is always on a case by case basis, we cannot guarantee that you can get approval as this is at the discretion of the bank.

Borrowing with one of our banks

To qualify with a bank you must meet the below criteria:

• Ideally you must have paid the defaults at least six months prior to applying.
• The size of your defaults will determine how much you can borrow:
• Up to $5,000 in total defaults: You can borrow up to 80% of the property value.
• Up to $2,000 in total defaults: You can borrow up to 90% of the property value.
• Up to $1,000 in total defaults (Telco only): You can borrow up to 95% of the property value.
• No more than three defaults per borrower.
• If you are purchasing a property then you must have at least 5% in genuine savings.
• No other policy exceptions are allowed.
• You must have a very good reason for the impaired credit history.

We cannot help you if you do not meet the above criteria. If you do meet this criteria then please call our mortgage brokers on 1300 889 743 or enquire online and we can help you to get approved for your mortgage.

Borrowing with one of our specialist lenders

Specialist lenders are more flexible and can consider more paid defaults than the banks can. However you will pay a higher interest rate than you would with a bank loan. To qualify for a non-conforming home loan you must meet the following criteria:

• You can borrow up to 80% of the property value if you have defaults lodged on your credit file in the last 2 years.
• You can borrow up to 90% of the property value if all of your defaults are over 2 years old.
• With a low doc loan you can borrow up to 80% of the property value.
• No vacant land.
• No construction loans.
• No properties over 5 acres in size.
• You must have a good reason for the impaired credit history.

We cannot help you if you do not meet the above criteria. If you do meet this criteria then please call our mortgage brokers on 1300 889 743 or enquire online and we can help you to get approved for your mortgage.

If you have one or more unpaid default

Borrowing with one of our specialist lenders

You cannot borrow with a bank if you have unpaid defaults. Specialist lenders are more flexible and can consider your application if you have unpaid defaults or large paid defaults over $5,000. However you will pay a higher interest rate than you would with a bank loan. This isn’t a major problem as most people stay with a non-conforming loan until their credit history is clear and then they refinance their loan to a major lender.

To qualify for a non-conforming home loan you must meet the following criteria:

• You can borrow up to 80% of the property value if you have defaults lodged on your credit file in the last 2 years.
• You can borrow up to 90% of the property value if all of your defaults are over 2 years old (paid or unpaid).
• With a low doc loan you can borrow up to 80% of the property value.
• No vacant land.
• No construction loans.
• No properties over 5 acres in size.
• You must have a good reason for the impaired credit history.

We cannot help you if you do not meet the above criteria. If you do meet this criteria then please call our mortgage brokers on 1300 889 743 or enquire online and we can help you to get approved for your mortgage.

What will the lender know about my defaults?

Defaults will show up on your credit file with the status of either paid, unpaid or settled. A settled default is where you have made an agreement to pay part of the debt. The lender will know the date the defaults were lodged, the amount of the defaults, the date they were paid (if you have paid them!) and who lodged the defaults.

Defaults remain on your credit file for five years from the date they are lodged. Even if you pay the default it will still remain on your credit file, however this will look slightly more favourable to lenders. It is important that you are aware of what defaults you have and what status each one is at to avoid applying with an unsuitable lender and being turned down due to your bad credit history.

How do lenders view defaults?

The banks find that borrowers often say to them that they didn’t know they had a default. However lenders hear a lot of stories and will always assume that you did know about the default. They simply don’t know who to believe and who not to believe.

We always recommend that you apply with lenders that can accept defaults rather than wasting your time applying with the major banks that will decline even if you have only had minor credit issues.

Most mainstream lenders will not lend to people who have an impaired credit file, irrespective of the reason. The banks have looked at the repayment history of the customers that they have approved who do have a default and have found that there is a significantly increased chance that these customers will miss their repayments. They can’t tell the good borrowers from the bad, so they decline any application from someone who has defaults!

How to apply for a home loan if you have defaults

To increase your chances of approval, you can take these simple steps:

• Provide a default explanation letter,
• Provide evidence to back up your explanation of the cause of your defaults,
• Save up at least 5% of the purchase price and provide as large a deposit as possible,
• Pay any unpaid defaults and get the credit provider to mark them as paid on your credit file before you apply for a loan, and
• Apply with a lender that can accept borrowers with defaults.

Please call us on 1300 889 743 or enquire online to discuss your situation with one of our mortgage brokers.

Is this different to defaulting on your home loan?

Yes, defaulting on your home loan means if you have a home loan and you are “in default” meaning you haven’t met the conditions of the loan contract. Normally this is because you haven’t made the payments on time.

View our arrears / missed payments page for more information on having a home loan in default.

Will the lender know I have a default?

Yes, the lenders will do a credit check and will find out about any defaults that you have. You should tell the lenders upfront about your defaults otherwise they will not be pleased when they find out that you withheld this information. Some banks will decline your loan outright because you did not disclose this at the time of applying for the loan.

If you are applying for a home loan with a default then you need to plan and submit your loan with evidence to back up your story to show the lender that you are a low credit risk.

Does the amount of the default matter?

Different default sizes, amounts and the time they are paid can mean that you are eligible for different types of loans. Therefore you should be aware of the following terms:

• Clean credit: No defaults, ever.
• Near prime: Small paid default less than $500 paid over 1 year ago or excessive enquiries on your credit file. Most lenders can approve a loan for you without any problems.
• Below average: Paid default less than $1,000 paid over 6 months ago. Some prime lenders and major banks can lend you up to 80% on a case by case basis. Over 80% up to 90% or even 95% may be available in some cases depending on the situation.
• Bad credit: More than $1,000 in defaults, all paid. You would likely have to apply with a specialist lender. If you have a very good story backed up with evidence then you may be able to borrow 80% of the property value with one of our banks.
• Serious credit impairment: More than $5,000 in defaults, some unpaid. You must use a private, specialist or non-conforming lender.

Apply for a mortgage

Our mortgage brokers are experts in lending to people with impaired credit. Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will let you know if you qualify for a home loan.