Home loans for people with a bad credit score

By   |   Verified by Yvonne Taylor   |   Updated 19 Sep 2023

Home loans for bad credit score
  • Understand what is considered a ‘bad’ credit score.
  • Learn how to check and improve your credit score.
  • Discover the home loan options for a bad credit score and their pros and cons.

Your credit score is a numeric representation of the information kept in your credit file by the three major Australian credit reporting agencies. If you have a less than ideal credit score, the good news is that it can actually be improved.

Having a low credit score is not ideal, especially for those trying to get a home loan. Fortunately, there are still some home loans available to those with ‘bad credit’.

Read on to learn more.

Unloan Variable Home Loan (Owner)

Unloan Variable Home Loan (Owner)

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  • Get a rate discount every year.
  • No application fees, no account fees, and no exit fees.
  • Borrow up to 80% of your home’s value.
  • Refinancing only.

What is a bad credit score in Australia?

Credit reporting agencies use your personal financial information to determine your score. They have a complicated algorithm that can assess your financial behaviour. The three main agencies in Australia are Equifax, illion, and Experian.

Experian and illion allocate scores between 0 and 1,000 while Equifax scores with an upper limit of 1,200.

As a result, a fair or low credit score differs between the reporting bodies. The Australian average score is dependent on age and gender and lies somewhere between 670 and 790. But the agencies themselves classify scores between 500-725 as ‘average’, so anything under 500 may be viewed as bad credit. The labels given to these lower-scoring tiers are ‘fair’ and ‘low’.

Reporting agencyBad / low
Equifax0 - 509
Experian0 - 549
illion1 - 299

Note: For illion, a score of 0 is indicative of defaults, CCJs, or bankruptcy on your file.

Why you may have a bad credit score

The easiest way to know what creates a bad credit score is to understand what goes into the calculation. Here are some of the bad indicators that the reporting agencies use to determine less than ideal patterns.

  • Indications of high-risk behaviours. These include filing for bankruptcy or serious credit infringements. A serious credit infringement is when an individual (with overdue debt) has left their last known address but has not informed the credit provider.
  • Applications for credit from certain providers. For instance, a payday loan application may appear to have more risk than a bank loan application.
  • Having too many credit enquiries within a short time frame.
  • Inconsistent debt repayments. This includes making late repayments or missing them altogether.
  • Changing jobs or addresses too often. This can show income instability.
  • Having a short credit history or being very young. This can indicate a higher level of risk.

How your credit score affects your ability to get a home loan

If you have a fair or low credit score it can limit your home loan options. Some certified lenders will not approve your loan at all while others may give you a very high-interest rate.

The interest you pay on any credit is the price for borrowing money. The riskier the client looks to a lender, the more the client has to pay for credit. It seems ironic that those having financial issues have to pay more, but it is how the lenders mitigate risk.

It is not profitable for a lender to have a client that cannot make repayments. This is true even if they repossess the property and auction it off. It is far better, from their viewpoint, to charge interest over a 25-30 year loan in which the mortgage holder makes prompt repayments.

How to check your credit score

Did you know that you can check your credit score for free as often as you like, without having any impact on your score? In fact, we can help you track your credit score over time, automatically, and see changes on a monthly basis.

This is especially gratifying when you are improving your score and slowly see it climbing up. It’s totally free and only needs you to provide a form of identification.

You can also request a free copy of your detailed credit report from any of the reporting agencies every three months, and it’s a good idea to check your credit score and report at least once a year.

What is a bad credit home loan?

Bad credit home loans are available for those in tighter financial situations. They typically come with higher interest rates and larger fees, making them more expensive overall. They still require a deposit and are the same as traditional loans in most other ways. Sometimes the deposit required is higher than the standard 20% of the value of the property.

These specialist, non-conforming lenders still have some requirements that you will have to meet. Before applying, settle any debt you can, wait for any defaults to disappear from your credit file if possible, and be upfront with the lender about any remaining bad credit listings.

Which lenders offer bad credit home loans?

Across the board, the major banks and loan providers will not offer bad credit home loans. They have a large enough client portfolio of individuals that have a higher credit score. It’s too high a risk for them to offer bad credit home loans.

Of around 150 home loan providers in Australia, only a fraction offer bad credit home loans. They are referred to as specialist or non-conforming lenders. Some of them are listed below:

  • Pepper Money
  • Savvy
  • Red Rock Mortgages
  • Liberty

You should always shop around for the best loan before applying. As stated previously, submitting too many applications in a short space of time can reflect poorly on your credit history. Use online calculators to compare interest rates, loan duration, and total fees, and check other loan features before making a decision.

Bad credit home loan pros and cons

The reality is there are pros and cons to be taken into consideration. Let’s take a look at some of them.


  • You don’t have to improve your credit score before getting a loan. This could take a long time and a lot of diligence.
  • Could allow you to rebuild your credit score if you make prompt repayments.
  • If your credit score improves, you can always refinance the home and possibly get a prime interest rate without delaying the home-owning process.


  • Very high-interest rates and mortgage fees.
  • You may have to take out LMI (Lenders Mortgage Insurance), which adds to the cost.
  • You may have to provide a deposit of more than 20%, which may limit what you can afford to buy.

How to improve your credit score

You should firstly check your credit report for any mistakes in the listings. You can then request them to be fixed. This may have a significant positive impact.

If your rating is low because you have little or no credit history, consider applying for a credit card and/or a personal loan. Be very responsible with your choices and try to only use mainstream lenders. You then have to make very prompt repayments, consistently.

Speaking of prompt repayments, doing this for all types of debt will bump up your score as well. Knocking out debt is possibly the best way to get a healthy credit rating.

You can also make yourself look more credible in the eyes of a lender by setting up a savings account and depositing into it every month. Lastly, consider staying with one employer for a decent amount of time.

For more detailed information and tips about credit score improvement, check out our guide to improving your credit score.

The verdict

If you have a low credit score it’s probably comforting to know you still have home loan options. They are usually more expensive than traditional mortgages.

However, with the option of refinancing with a mainstream lender, later on, this may not be so significant. If you are desperate to become a homeowner, starting early could be more beneficial than waiting until you can qualify for the cheapest loan available.

Just remember that you also have the option of being patient and improving your credit score. If it improves by just 100 or 200 points, that could save you tens of thousands over a 30-year loan.