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Bad Credit Home Loans

Written by

Shaun McGowan

Bad credit home loans are specifically designed for people who’ve experienced financial difficulty, have a bad credit score, or have been declared bankrupt, and can enable them to finance the purchase of a home despite a low credit rating.

In this guide to bad credit home loans you’ll learn:

  • The pros and cons of bad credit home loans
  • What a credit score is and how you can improve yours
  • The different types of bad credit home loans
  • How to apply for a bad credit home loan
  • How to compare bad credit home loans

When applying for a bad credit home loan take time to consider all your options and make sure you can afford repayments so that your new loan doesn’t cause further financial stress.

How do bad credit home loans work?

Bad credit home loans can enable those who’ve declared bankruptcy or have bad credit to purchase a home, but there are a few drawbacks. They can have higher interest rates and fees than regular home loans and if you can’t make repayments your lender may be able to repossess your home.

Learn more about home loan fees and repayment options.

Before applying for a loan it may be a good idea to repair your credit score by checking any inaccuracies and making debt repayments on time over a long period. If that’s not an option there are several lenders who offer specialist loans for borrowers with bad credit.

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If you make an application and are rejected, it may count as a negative credit event and further damage your credit score. Make sure you prepare your application thoroughly before applying.

Bad credit home loan application

Generally speaking, if your credit score is in the lower part of the average range or is below average you may need to apply for a bad credit home loan. The process is usually similar to applying for a regular home loan with a few notable differences.

Learn more about applying for a home loan.

Bad credit home loans

Who can apply for a bad credit home loan?

To find out whether you’ve got bad credit and need a bad credit home loan, you can:

  • Check your credit score
  • Approach a lender or mortgage broker to enquire (enquires will not be listed on your credit file, only formal applications)

Common signs that you may have bad credit include:

  • Missed mortgage repayments in the last six months
  • Bankruptcy filing or debt arrangements
  • Several applications for credit in the last 12 months
  • Unpaid bills, taxes and other debts
  • You are the director of a business that is struggling financially
  • Several maxed credit accounts
  • Income that is not sufficient to meet living costs and debt repayments

A bad credit home loan shouldn’t be your first option. If you are able to secure a regular home loan now, or improve your financial situation and apply later, you may save money on home loan fees and interest.

How to apply for a bad credit home loan

Generally, major banks have strict credit requirements and are less likely to approve applications for bad credit home loans. In most cases, your best chance is to apply with a mortgage broker or non-bank lender.

There are several non-bank lenders and mortgage brokers who specialise in bad credit home loans. Lenders like these will assess your financial situation on a case by case basis, and include:

  • Pepper Money
  • Liberty Financial
  • Adelaide Bank
  • Savvy
  • Resimac

Mortgage brokers that can help with bad credit home loans include:

  • Aussie
  • Yellow Brick Road Mortgages
  • Redrock Group
  • Debtfix

To apply simply visit your chosen mortgage broker or lender’s website, fill out an online application form if available or contact the lender/broker directly to enquire.

Home loan mortgage broker

Bad credit home loan features

There are certain features that may make your bad credit home loan more suited to you, helping you to improve your financial situation. These might include:

Debt consolidation

Debt consolidation (rolling all your debts into one loan) is a great way to simplify your repayments into one easy-to-understand amount. Since home loans typically have lower interest rates than other types of credit, rolling those debts into your home loan may help you save money on interest. This could help you pay your loans off sooner and save you thousands of dollars.

Redraw facility

A redraw facility allows you to make extra repayments above the minimum requirement, then allows you to access those extra repayments should you need them. If used correctly it’s a great way to pay your loan off faster and make sure you always have funds available to cover expenses.

100% offset account

A 100% offset account links a savings or transactions account to your mortgage. Your mortgage interest is then calculated on your loan amount minus the amount in your linked savings account.

If you’ve managed to keep money aside before applying for a mortgage this could be a great way to minimise interest costs and pay your loan off faster.

Learn more about home loan types and features.

Home loan credit scores explained

Your credit report is a record of all your personal financial information including things like debts, late payments and credit enquiries. Your credit score distils all this information down to a single number usually from 0 to 1,000 or 1,200 - with a high score indicating a good credit history and a low score indicating a bad credit history.

Lenders use this report and score to help decide whether to lend you money and to create a profile of you as a borrower.

You can check your credit score for free and without any impact on your credit score with Money Matchmaker®. Your score won't be negatively affected and we protect your data with encryptions.

See what parts of your credit report are negatively, or positively, affecting your score.

If your credit score is low it can be difficult to get a conventional home loan and you may need to apply for a bad credit home loan.

What goes into calculating a credit score

To calculate your credit score and prepare your credit report, rating agencies compile a record of your financial history. This includes:

  • The number and types of accounts you have
  • Your used credit versus available credit
  • Your repayment history and behaviour
  • Applications for credit
  • The amount you owe
  • The length of your credit history

Each item in your credit report will have either a negative or positive effect on your credit score and affect the lender’s perception of you as a borrower.

Example of how certain actions may affect your credit score

Positive or neutral effect on credit scoreNegative effect on credit score

Debt repayment

Making debt repayments on time consistently

Missing debt repayments or making late repayments

Used VS available credit

Not using all available credit

Maxing out your credit limit on several accounts

Number of accounts

Having a few credit accounts

Having several debts from multiple providers

Types of credit used

Mortgages, student loans with good repayment history

Multiple credit cards, multiple car loans and/or personal loans


Having a record clear of bankruptcies, foreclosures and wage attachments

Bankruptcies, foreclosures and wage attachments

Applications for credit

Few applications for credit

Several applications for credit over a long period of time

What is a bad credit score?

Your credit score in Australia will be between 0 and 1,000 or 0 and 1,200 with a low number indicating a poor credit history and a high number indicating a good credit history. Each of the three main rating agencies uses a different credit score scale.

Score meaningEquifaxExperianCredit Simple





Very good / great








Fair / average / room for improvement




Below average / low score

Below 510

Below 549

Below 300

How to improve your credit score

If you’ve got a bad credit score and you’re not in a hurry to buy a home you could take some time to improve your credit score before applying.

The first step to improving your credit score is knowing what it is, so take the time to visit a credit agency’s website and access your credit report and credit score. If your credit score is poor here’s what you can do:

How to improve your credit score

1. Make sure your credit report is accurate

Check your credit score. If your credit report is inaccurate it could negatively impact your credit score and ability to secure a home loan. Check yours for incorrect debt amounts, duplicated debts, debts that aren’t yours and other inaccuracies to make sure that’s not the case.

If you find anything wrong contact:

  • The credit provider who listed the mistake.
  • The credit reporting agency.

In some cases, these mistakes can be identity theft, but usually it will come down to a mistake by your credit provider or the reporting agency.

Improve your credit score with Money Matchmaker

2. Pay off overdue debt and bills

If you’ve got overdue debt and bills paying them off as soon as possible and/or coming to an arrangement with the credit provider will help to minimise the damage they do to your credit score.

Pay off your defaults to improve your credit rating

3. Make bill and credit repayments on time, every time

The best way to improve your credit score is to consistently pay bills and make debt repayments on time over the long term.

Make bill and credit card repayments on time to improve your credit score

4. Apply for credit (if you don’t have any)

While unpaid debts may damage your credit score, paid debts can actually improve it - demonstrating your ability to repay a finance amount can reduce your risk level. If you don’t have any debt, applying for credit that you can easily afford to repay and that won’t harm your financial situation could help improve your credit score over time.

Loan overdrafts

5. Hold onto debt that you can easily manage

If you’ve got a credit card or other similar debt cancelling it won’t necessarily improve your credit score. In fact, lenders like to see that you’ve held credit over a long period of time and consistently made payments on or before their due dates.

The types of defaults lenders are interested in

6. Get expert advice

If you’re experiencing financial difficulty it’s often a good idea to speak to a financial advisor for help solving your problems. You may be able to access free financial advice with the help of your state’s Financial Counsellors Association:

Mortgage brokers may also offer financial advisory services free of charge and there are several other paid services available.

Get help with your finances if you have bad credit with Money Matchmaker


Those who have bad credit or have been bankrupt may still be able to buy a property with a bad credit home loan. If your financial situation has improved and you’re confident that you can afford to make repayments, a bad credit home loan can be a way to both improve your credit score and buy a home.

Before applying, always make sure you’re getting a good deal by comparing each loan's fees, interest rates and features or getting a mortgage broker to help you do so.

Bad credit home loans pros and cons


  • Allows those with bad credit or a history of bankruptcy to secure a home loan quicker and easier. 
  • May help you to repair your credit score if you can make regular repayments on time. 


  • Higher interest rates. 
  • Higher fees
  • If your application is rejected that may further damage your credit score. 
  • You may be charged lenders mortgage insurance (LMI).

Bad credit home loan FAQ

A bad credit home loan is a loan product designed specifically for borrowers who have bad credit or have been declared bankrupt.

With bad credit home loans, it’s important to find a loan with low interest rates and low fees. Beyond that useful features might include:

  • A redraw facility
  • 100% offset account
  • Repayment flexibility

In most cases you can submit a bad credit home loan application just like a normal home loan application - either online through your lender’s website, by scanning and emailing your application and documents or by visiting your lender’s office.

Yes, mortgage brokers can arrange bad credit home loans for borrowers. Some mortgage brokers even specialise in securing bad credit home loans from non-bank lenders.

Bad credit home loans usually have higher interest rates than normal home loans. The worse your credit score is, and the smaller your deposit - the more lenders are likely to charge you.

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About the Author

Shaun McGowan from money.com.au



Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.