Can You Secure Mortgage with Bad Credit?

Most people believe that having a bad credit history is like a curse on their home loan approval status. Even a few missed payments or old defaults feel like the end of the road. Many also think banks will automatically reject their application after seeing this. Some don’t even apply because they believe their chances are zero.  

But in reality it is not the whole truth. It’s like a mortgage loan with bad credit is difficult, not impossible. There are ways to secure a mortgage loan even with it. If you are also struggling with this problem and want a solution, keep reading this blog. Because in this, we’ve covered everything you need, starting from what bad credit actually is to the smart ways to correct it.  

We’ve covered how some Australians successfully secure a mortgage loan despite their bad credit history by looking beyond traditional lenders. The step-by-step process, minimum credit score requirements, government schemes for homebuyers with bad credit, and much more.

What Is Considered a Bad Credit Score for a Mortgage?

Now, first of all, understand what exactly a “bad credit score” is and how it can impact your home loan application. So, in Australia, credit scores generally range from 0 to 1,000 or 1,200, depending on the credit reporting agency. But there are other ranges, too, based on which your credit score is rated, such as- 

As shown above, if your credit score falls between 550 and 699, or below, lenders may consider it below average. Approval chances can be reduced, and borrowing conditions may become stricter. This is generally what lenders refer to as a bad credit score in the context of a mortgage loan.

How Bad Credit Affects Your Home Loan Application

When you apply for a home loan with a low credit score, lenders don’t just see numbers, they see risk. And that risk is what creates a big impact. They use risk-based pricing to decide your home loan terms and how much they can actually lend you. So, the following are the pointers telling how bad credit affects your home loan application- 

• Higher Interest Rates- You will be charged a higher rate than the standard rate to offset the risk of your low score. This can therefore add much more financial pressure to your monthly mortgage repayments.
• Larger Deposit Requirements- Generally, you may be asked for 20% deposit or more. That’s because most banks would not offer “low deposit” options to such high-risk borrowers. And thus, your loan may become more expensive than expected.
• Extra Fees- Some lenders can charge a “risk fee” or higher application costs from you, which is called Lender Mortgage Insurance
• Stricter Terms- Flexible features, such as offset accounts or flexible redraw facilities, may not be offered.
• Limited Choice- A smaller number of specialist lenders/mortgage brokers are willing to take the risk, therefore, narrowing your options.

Therefore, lenders view your loan as a high-risk, short-to-medium-term option. And this typically will continue until you improve your credit score and refinance to a better rate. Overall, this will impact your borrowing capacity and leave you with fewer options than you can find in a standard home loan.

Can I Get a Home Loan With a Low Credit Score?

Of course, you can get a home loan with a low credit score in Australia. But then, your approval will depend on more than just the number on your credit file. Because lenders look at more than just this number. They will look at your 

• Income stability
• Employment history
• Existing debts 
• Savings pattern 
• Deposit size 

If your credit issues are minor and older, such as a paid default or a few missed repayments, lenders may still consider your application. But only if you keep a high income and a larger deposit.  

How to Get A Mortgage Loan With Bad Credit Score Step-By-Step

Now that, if your credit score isn’t perfect, the home loan application process needs to be more strategic. Because getting approved for a mortgage loan with bad credit is less about perfection and more about positioning your application correctly.

You cannot leave the final approval to chance. You need to work with a plan, and here’s how you can practically do that- 

Step 1- Check Your Credit Report First

Before you speak to any lender, get yourself a copy of your credit report. Have a complete review and check for things like 

• Errors or incorrect listings
• Paid defaults still showing as unpaid
• Or any outdated information

Because even small mistakes can reduce your approval chances. But if you fix them early, they can improve your position faster than you think.

Step 2- Understand Factors Impacting Your Score

Not all bad credit carries equal weight in the eyes of lenders. Like, a single missed repayment from two years ago by your side will be treated differently from those of your multiple unpaid defaults or recent arrears.

Because lenders look at-

• How recent the issue is
• Whether it’s been paid
• How large the debt was
• Whether the problem is repeated

That’s why if you know this well, this can help you choose the right lender instead of applying blindly.

Step 3- Strengthen the Rest of Your Application

If your credit score is weak, you can work on other parts of your application. That’s why focus on- 

• Stable employment
• Consistent income
• Reducing existing debts
• Building genuine savings
• Increasing your deposit

But remember, if you keep a larger deposit, it can reduce the lender’s risk and significantly improve your chances.

Step 4- Avoid Multiple Loan Applications

Every time you apply for credit, it’s very obvious, it leaves a mark on your file. It’s like too many enquiries in a short time can make lenders nervous. That’s why, instead of applying everywhere, speak to a mortgage broker who understands bad credit lending thoroughly. Because one well-placed application is far better than five plus rejections.

Step 5- Consider Specialist Lenders

Major banks often have strict credit policies. But if you work with specialist lenders, they assess your application differently. They often look more closely at your current situation rather than just your past mistakes. 

No doubt, the interest rate may be higher initially. But many borrowers use this as a stepping stone, then refinance later to a better rate after improving their credit profile.

Step 6- Have a Long-Term Plan

Getting approved is only step one. But the better move is planning how you’ll

• Make consistent repayments
• Improve your credit score
• Refinance in 1–3 years

Because bad credit doesn’t have to be permanent and does require discipline after approval.

Minimum Credit Score Required for a Mortgage Loan 

In Australia, there is no single “magic number” that guarantees a home loan. Every lender has its own rules. However, based on current 2026 market trends, here is what you can expect-

Major Banks (The “Big Four”) 

They generally look for a score of 700 or higher. If your score is below 600, most traditional banks will likely decline your application automatically.

Second-Tier Lenders

These banks are slightly more flexible. They may consider your scores around 650 to 700, especially if you have a stable job and a good explanation for past issues. 

Specialist Lenders 

Some non-bank lenders may prefer low credit scoring, somewhere between 500-600+ but can charge higher interest rates, considering your bank statements and income to see if you can afford the loan today or not. 

Lenders with Minimum Entry Requirements

While some specialist lenders are very flexible, they have minimum threshold requirements. Typically, it is very difficult to secure a loan with a score below 500. So, if you fall into this category, you may need to focus on credit repair for 6 to 12 months before applying. That’s because they will also accept a 580+ credit score while lending. 

Also, remember, a low score is often okay if you can prove your “character,” but not for a long-time. 

Government Schemes for Homebuyers With Bad Credit 

With a weak credit score, you can also consider some of the government support schemes to make things easier. Especially, it is about saving for a deposit. These schemes will allow you to buy a home with as little as 2% to 5% deposit without paying Lenders Mortgage Insurance (LMI).

Here are the primary schemes which you can think of- 

• Australian Government 5% Deposit Scheme (Earlier Called the Home Guarantee Scheme)

This is now expanded for all first-home buyers. In 2026, the government removed the previous “income caps,” making it accessible to more Australians. As per this, you only need to prepare for a 5% deposit, and the government take cares of the rest. 

But there is an important condition in it that you should not have owned any property for the last 10 years. Now, this doesn’t fix bad credit, it reduces the amount you need upfront. This can therefore strengthen your position and improve your serviceability profile if your score is borderline. 

• Regional First Home Buyer Guarantee

If you’re buying in a regional area, this program allows eligible buyers to secure a home with a lower deposit while avoiding LMI. Again, lenders will still assess your credit file. But combining a government guarantee with a stable income can improve your approval chances.

• Family Home Guarantee (2% Deposit): 

This specifically supports single parents or legal guardians. Under this, you can buy a home with just the least 2% deposit. Unlike other schemes, you don’t necessarily have to be a “first home buyer,” but you just can’t currently own a property.

• Help to Buy Scheme (Shared Equity)

This is a newer initiative where the government co-purchases the home with you. It’s like they will hold some equity stake in your equity. They contribute up to 40% for new homes or 30% for existing homes. This can significantly lower your mortgage repayments and make it easier for those with lower borrowing capacity to get approved. 

• First Home Super Saver Scheme (FHSS)

Under this scheme, you can save for your deposit inside your superannuation fund. Also, because of the tax savings, you can grow your deposit faster than saving with after-tax income. You can release up to $15,000 per year ($50,000 total) with this. 

• First Home Owner Grant (FHOG)

This is a one-off cash payment from your state government. In 2026, many states offer between $10,000 and $30,000 for buyers who are building or purchasing a brand-new home. It is a great way to increase your deposit size instantly, t which lowers your Loan-to-Value Ratio (LVR) and reduces the lender’s risk assessment of your credit score. 

Pro Tip- In 2026, you can often combine these schemes. For example, you could use the 5% Deposit Scheme to avoid insurance fees and use the $10,000 FHOG to top up your deposit. By doing this, you can keep your LVR lower, which is the safest way to ensure an approval under current APRA serviceability buffers.

Smart Ways to Improve Your Credit Before Applying 

If you aren’t ready to apply today, taking six months to “polish” your credit can save you thousands in interest. Because Australian lenders use Comprehensive Credit Reporting (CCR), which means they see your good habits as well as the bad ones.

You can follow these simple ways to improve it- 

• Lower Your Credit Limits 

Even if you don’t use the full amount, a lender sees a $15,000 credit limit as a potential $15,000 debt. Reducing your limit to what you actually need instantly to increase your borrowing capacity. 

• Clear “Buy Now Pay Later” (BNPL) Accounts

Lenders now treat services like Afterpay or Zip as lines of credit. So, close these accounts before you apply to show that you have better control over your daily spending habits.

• Correct Reporting Errors

Mistakes can happen. That’s why check your report for defaults that should have been removed or incorrect personal details. Disputing even a small error can jump your score by multiple points almost overnight. 

• Automate Your “Grace Period” 

Most Australian lenders offer a 14-day grace period for missed repayments. So, for this, set up direct debits to ensure you never miss a due date and stay within this safe zone.

• Avoid New Credit Enquiries

Every time you apply for a credit card or a phone plan, your score takes a small hit. Therefore, avoid any “hard enquiries” for at least six months before your mortgage application.

Conclusion 

Lastly, we can say that getting a mortgage loan with bad credit is difficult to get approved, but not impossible. It simply requires you to have the right strategy, the right lender, the right presentation and the right timing. Because if you focus on strengthening your overall financial position, avoid rushed applications, as your credit history is important, but it does not define your future. 

We’ve covered everything you need to improve your credit score. The minimum credit score requirement, government support schemes, and smart ways to boost your credit score. Now, begin your homeownership journey with the right approach and the right mortgage guidance. 

For more assistance, reach out to us at 1300 GET LOAN, 0456 456 267 or book your strategic consultation at Nfinity Financials.

Frequently Asked Questions 

Here are the answers to some more questions about your credit score you might be curious about-

Q1. How to refinance a mortgage with bad credit?

Show 6 to 12 months of perfect repayment history on your current loan to prove reliability. Because most borrowers switch to a specialist lender first to “clean” their profile, then refinance to a major bank once their score improves. 

Q2. How much deposit is required if I have bad credit?

Standard banks usually require 20% to mitigate this risk. However, with specialist lenders or government support like the First Home Guarantee, you may be eligible with as little as 2% to 5%, provided your income is stable. 

Meanwhile, if there are some serious concerns with your credit score, like bankruptcies or some repossessions, you might need to 30% to 40% too. But in some cases, you need to pay 5% to 10% either, depending on the lending policies of your lender.

Q3. Can government schemes help home buyers with bad credit?

Yes. Schemes like Help to Buy (Shared Equity) and the 5% Deposit Scheme focus more on your current income and residency than on a perfect credit score. You can use them to skip the high cost of Lenders Mortgage Insurance (LMI).

Q4. Are there lenders offering mortgage loans for bad credit borrowers?

Absolutely. Australia also has a strong “non-conforming” market. Lenders like Pepper Money, Liberty Financial, and Bluestone specialise in “Fresh Start” loans for people with defaults, arrears, or past bankruptcy.

Q5. Do bad credit home loans have higher interest rates?

Yes, generally there is. Because you are viewed as a higher risk, rates are typically 1% to 3% higher than standard bank rates. That’s why most buyers use these loans as a 2-year stepping stone while they rebuild their credit to qualify for a cheaper rate later.