Last Updated: 11th July, 2017

Do You Have Bad Credit Due To Illness?

Published by Otto Dargan on November 19, 2015

Do you have defaults on your credit file because you sustained an injury or fell ill and couldn’t keep up with your rent, bills and credit card repayments? Are you worried that the bank won’t accept your home loan application?

The fact is, most banks will look at your application, including your credit history, on face value only. If they see that you have a lot of black marks, they’ll rarely delve deeper to find out whether there was a legitimate reason for you not being able to meet your financial commitments.

This is despite the fact that literally thousands of Australians lose their job because of injury or illness every year.

Luckily, all is not lost if you need a home loan!

If you’re in a stable financial and employment situation, you may still be able to qualify for a bad credit home loan and can even get a great interest rate!

How do I get a home loan?

Injuries and illness can come without warning and people understand that. The problem is that lenders don’t and they want to avoid borrowers who have a bad credit file because it’s likely that they’ll miss their mortgage repayments as well.

This is why lenders have a list of qualifying criteria for bad credit home loans.

If you have a small default for less than $500 and it has been paid more than 6 months ago then you may be able to borrow up to 90% of the property value and in some cases 95% of the property value.

If you have any unpaid defaults then specialist lenders may consider your application and you may be able to borrow up to 90% of the property value as long as the defaults have been fully paid before the loan is approved.

What about serious credit problems like judgments, court writs, part IX agreements or bankruptcy?

If you’re in any of these situations, give us a call on 1300 889 743 or fill in our free assessment form and one of our experienced mortgage brokers can let you know what your options are.

Can I get approved with a major lender?

Major lenders can sometimes make it really hard to get a home loan, especially if you have bad credit.

This hassle is the last thing you want when you’re trying to recover and focus on your health.

No worries! There are specialist lenders who take a common sense approach and are willing to accept some black marks if you can provide good reasons backed up by strong evidence for having said defaults on your file.

You may have to pay a slightly higher interest rate, however, we can later help you refinance back to a major lender at a standard interest rate when your credit history has cleared.

How long does bad credit information stay on my credit file?

Most bad credit information stays on your credit file for up to 5 years including court writs and summons, defaults, court judgments and part IX agreements.

An exception to this is bankruptcy, which stays on your credit file up to 7 years (5 years from the day you become bankrupt and 2 years starting from the day the bankruptcy ends).

It’s important to note that paying a default does not remove it from your credit file, it just updates your file to show that the default was paid.

You can only have a default removed with the consent of the company that lodged the default on your file in the first place.

How does illness affect Australians?

According to Safe Work Australia’s latest Australian Workers’ Compensation Statistics (2012-13), there are around 117,815 serious claims made nationally per year, culminating in around 1.5 million weeks lost from work.

What’s even more shocking is that the majority of workplace injuries go unreported and this data only refers to incidents in the workplace: there are many more Australians who don’t receive any compensation at all!

What this eventually leads to is insolvency or the inability to meet financial commitments including mortgage repayments.

The Australian Financial Security Authority (AFSA) found that around 2,160 Australians were unable to pay their debts over the 2013-14 financial year due to illness, one of the top four reasons for personal insolvency.

How Tom and Betty got their home back after unexpected illness

Tom and Betty had been living their dream life with their two children when tragedy struck.

Six years earlier, they had taken out a $500,000 loan to buy their home, which was valued at $600,000 at the time.

Up until the past year, they had been making their mortgage repayments on time as well as meeting their other financial commitments. In fact, they were just planning their next family holiday when, at 38 years of age, Betty was severely injured in a car accident.

With Betty temporarily incapacitated and unable to work, Tom also had to take time off from running his plumbing business to drive Betty to hospital visits, help with her rehabilitation and take care of their children.

Due to this unfortunate event, they struggled to survive on one decreased income and soon started getting behind on their mortgage repayments. They also began to apply for more credit, maxing out a couple of credit cards, not to mention the personal loan they had to take out to repair their vehicle after the accident.

They failed to make their mortgage repayments for months, and the bank even agreed to accept reduced repayments for a period of six months. However, with all the bills mounting up, they couldn’t even manage to make the reduced repayments.

Although each bank has different policies when it comes to repossessing property, most of them try to avoid it at all costs. This is because the cost and hassle involved is often not worth it for them.

When Tom and Betty couldn’t make their repayments for one whole year, their bank gave them a final notice of one month after which they would take repossession of their family home.

Fortunately, by this time, Betty had recovered from her accident and was able to return to work after her doctor gave her the all clear.

They still needed to sort their mortgage situation out before the bank took the house away from them so, with the help of a mortgage broker, they approached a specialist lender. They explained their terrible story but also provided evidence to show that they were once again financially stable after Betty had returned to the same line of work on the same income.

They were able to convince the lender to refinance their mortgage and were even able to consolidate their credit card debt and personal loan into their new home loan at a reduced rate. Best of all, they were able to keep their home!

After two years of making perfect repayments, Tom and Betty were able refinance their loan to a major lender at a sharper rate.

If you’re in a similar situation give us a call on 1300 889 743 or fill in our free assessment form and one of our experienced brokers will help you find the right solution.