Last Updated: 13th December, 2022

A lot of people don’t have any idea what their credit file looks like, let alone whether their credit score is up to par or not.

Learn how a bad credit score affects your chances at home loan approval.

What is a bad credit score?

The average credit score or Equifax Score (previously VedaScore) in Australia is 550, so any score below 500 is considered bad and scores below 400 are considered very bad.

Why is it such a big deal?

A bad credit score is a high-level indication of your credit-worthiness as a borrower and suggests that you are not financially stable.

Lenders assess literally hundreds of applications every day so just seeing this number can see your application stamped as high-risk by the credit assessor.

Of course, your credit score doesn’t tell the whole story and some specialist lenders recognise this.

We’ve helped clients who had credit scores as low as 200 and even at -200.

In cases where we couldn’t find a solution, we’ve helped them to develop a plan to move towards becoming an eligible borrower over 6-12 months (depending on their situation).

If you’re unsure of your score, try our credit score calculator to identify any potential issues in your credit file.

After that, give us a call on 1300 889 743 or complete our online assessment form to find out how we can help.

Can a bad credit home loan help me?

Yes, we have lenders that will assess your application on a case by case basis and listen to your side of the story as to what went wrong.

You will need to show that the past credit issues are behind you and you’re in a better financial position or that you’ve made plans to move towards a better position.

In our panel of 40 lenders, there are a number of specialist or non-conforming lenders that can help borrowers who fall outside the major bank’s standard lending guidelines.

Bad credit home loans can be the solution for a lot of borrowers despite the higher interest rate you will pay.

That’s because it’s best to think of bad credit mortgages as a short-term solution that puts you on the path to refinancing with a major lender at a much cheaper interest rate.

How do I improve my credit score?

Order a copy of your credit file

Order a copy of your credit file by contacting Equifax and make sure there are no errors.

In particular:

  • Check that you are not being charged for services that you previously cancelled such as an old mobile phone contract.
  • Check to see whether you have accrued a black mark due to mistaken identity (it happens more often than you might think!).
  • Ensure that your credit file reflects your current address.

Equifax’s starter pack starts at just under $80 and includes instant delivery, full credit report and your Equifax Score.

Unfortunately, we cannot provide you with a copy of your Equifax score.

Pay your bills on time and in full

One of the most important factors in your credit file is your repayment history information, following the introduction of positive credit reporting.

A solid history of on-time repayments shows that you are a reliable borrower.

Negative information, such as defaults that are more than 60 days overdue, can significantly lower your credit score and will stay on your credit report for five years.

Under the comprehensive credit reporting system, even payments that are two weeks (15 days or more) late will appear on your credit file as a black mark.

Even if you have already accrued a default, it is important to pay this default off with the credit provider or lender in order to increase your chances at mortgage approval.

Paid defaults are better than unpaid defaults!

Avoid adding more credit enquiries

Be very wary of making a lot of credit enquiries in a short period of time.

Major lenders will decline your application if they see that there are more than two credit enquiries on your credit file in the last six months.

If credit cards are a problem for you, you may want to consider seeking financial counselling and creating a budget to avoid overspending.

Identify other red flags with our calculator

Use our credit score calculator to identify potential red flags with your application.

It uses a similar method used by banks and Lenders Mortgage Insurers when assessing loans.

It is an excellent tool to help you understand why banks may decline your application.

Hint: Your credit file is only a small part of what lenders will consider.

How has comprehensive credit reporting affected credit scoring?

Before the introduction of comprehensive credit reporting or positive credit reporting, your credit file operated under a negative information sphere, where it mostly only reported adverse credit events such as defaults and judgments.

Starting from 1 July 2018, lenders are now mandated by law to provide additional information which appears on your credit file under the heading Consumer Credit Liability Information.

It includes:

  • 24 months repayment history (It includes how often you make your repayments and if you make them by the due date).
  • Account open and close dates.
  • Account limits.
  • Your usual repayment amount.
  • The type of credit products you have held in the last two years.

It gives a fairer, more accurate picture of your credit-worthiness as a borrower and supports responsible lending practices.

Late payments under 60 days can be found under the Consumer Credit Liability Information section of your credit report, while default information is found in the Overdue Accounts section.

Do you qualify for a bad credit score home loan?

We take a common sense approach when it comes to bad credit scores.

We understand that life events such as loss of employment, divorce, illness or one-off events can adversely affect your credit file resulting in bad credit.

However, it does not automatically mean you’re an unreliable borrower.

Give us a call on 1300 889 743 or fill in our online assessment form so we can find the right home loan solution for you.