Bad Credit Home Loans: How to Get Approved When the Banks Say No

Bad Credit Doesn’t Mean No Home Loan

A default from a phone bill you forgot about three years ago. A rough patch after a divorce or a business that didn’t work out. Bad credit rarely tells the story of who you are financially today — but try telling that to a major bank’s automated credit scoring.

Here’s the good news: bad credit doesn’t mean no home loan. It means you need the right lender, the right structure, and someone who knows how to present your application properly. That’s exactly what we do.

At Hunter Galloway we hold a 97% loan approval rate across all applications we processed from 2024–2026 — and a lot of that comes down to matching people to the right lender the first time, instead of racking up credit enquiries with banks that were never going to say yes.

What Counts as “Bad Credit”?

Lenders look at your credit file, not just your score. Things that can put you in the “bad credit” bucket:

• Defaults — a debt of $150 or more that’s been overdue 60+ days and formally listed. Stays on your file for 5 years, whether you’ve paid it or not. Paid vs unpaid defaults →
• Missed repayments — your month-by-month repayment history sits on your file for 2 years. Even a single late month can trip some banks’ automated rules.
• Hardship flags — if you ever asked a lender to pause or reduce repayments, an “A” or “V” flag can sit quietly next to the green ticks on your file. Most borrowers have no idea these exist. Hardship flags explained →
• Court judgments or writs — stay on your file for 5 years.
• Part 9 debt agreements — a formal, binding arrangement to repay part of what you owe, administered under the Bankruptcy Act. It stays on your credit report for 5 years from the start of the agreement (sometimes longer), plus a National Personal Insolvency Index listing. Part 9 home loans →
• Bankruptcy — on your credit report for the later of 5 years from the date you went bankrupt or 2 years from discharge. The National Personal Insolvency Index records it permanently, but that doesn’t stop you getting a loan. Home loans after bankruptcy →
• Too many credit enquiries — every application leaves a mark. Ironically, getting declined by banks one after another makes your file worse. (This is the single biggest own-goal we see.)
• ATO tax debt — doesn’t always show on your credit file, but lenders will find it in your paperwork, and unmanaged tax debt can sink an application. ATO tax debt home loans →

How long each of these stays on your file varies more than most people realise:

How Much Can You Borrow With Bad Credit?

More than most people expect, but the ceiling depends on the credit event. Some default scenarios can reach 95% of the property value on a purchase, while a discharged bankruptcy is capped at 80% under the specialist policy outlined below. The pricing tier, deposit and postcode can all tighten the result. As a guide, based on current lender policy:

Based on lender policies current at July 2026; every scenario is assessed individually. First home buyers are restricted to the lower-severity tiers with some lenders.

A guarantor can change this picture entirely — in some cases up to 105% borrowing with no deposit. See our guarantor home loans guide.

Your Scenario, Specifically

Bad credit isn’t one thing. Pick the guide that matches your situation:

• Home loans after discharged bankruptcy — you don’t have to wait years
• Part 9 debt agreement home loans — options during and after your agreement
• Paid vs unpaid defaults — why the difference matters so much to lenders
• ATO tax debt home loans — consolidating tax debt into your mortgage
• Hardship flags on your credit file — the “A” next to the green ticks that blocks mainstream lending
• Refinancing with bad credit — escaping a high-rate loan or consolidating debt
• Home loan declined? The reasons and fixes
• Default explanation letter — template and sample
• Debt consolidation guide
• Low doc loans and self-employed home loans

The Hidden One: Hardship Flags

This deserves its own call-out because almost nobody knows about it. If you ever ask a lender to pause repayments — even briefly, even on a small debt — a financial-hardship flag can be recorded on your credit file, and it doesn’t look like a default or a missed payment. It sits as a small letter code next to otherwise clean history.

We’ve written up exactly how hardship flags work and how to get past them.

How Specialist Lenders Think

The majors run your application through automated credit scoring; if the computer says no, that’s usually that. Specialist lenders on our panel — like Pepper Money — assess manually, in tiers: the milder and older your credit event, the better your tier and your pricing. They want the story:

1. What happened? (Job loss, illness, divorce, business failure — life, basically.)
2. Is it finished? A problem that’s clearly behind you reads very differently to one that’s ongoing. Several lenders treat multiple listings from a single “life event” (a divorce, a business closure) as one credit event rather than five separate strikes.
3. What’s your conduct been since? Twelve months of clean repayment history is worth a lot.
4. Can you afford this loan today? Income, expenses, deposit.

Instead of Lenders Mortgage Insurance (which LMI insurers generally won’t write for bad-credit borrowers), specialist lenders typically charge a one-off risk fee — usually 1–2% of the loan. It’s the price of getting a yes now rather than in five years.

One thing that genuinely moves the needle: a well-written default explanation letter with evidence attached (medical certificate, termination letter, settlement statement). We help every bad-credit client put one together — here’s our template.

The Exit Strategy: This Loan Is a Stepping Stone

Nobody should sit on a specialist loan forever. The play is:

1. 1Get approved nowA specialist lender says yes today, priced for the risk — a risk fee instead of LMI.
2. 2Keep it clean for 12–24 monthsEvery repayment on time while your defaults age or drop off your file.
3. 3Refinance to mainstreamOnce your file is clean enough, we move you to a sharper rate. We diarise this for you.

We diarise this for our clients — when your file is clean enough, we move you. That’s the difference between a broker and a lender: the lender wants to keep you; we want to get you out. More on refinancing with bad credit →

Steps to Improve Your Chances Before Applying

1. Pull your credit report (free from Equifax, Experian and Illion) and check it for errors — incorrect listings can be disputed and removed. The OAIC’s guide to correcting your credit report explains how. Check more than one bureau: we’ve seen files clean at one and flagged at the other.
2. Pay or arrange payment plans for any unpaid defaults — paid defaults are treated far more kindly, and some lenders let you pay defaults from the loan at settlement.
3. Stop applying for credit. No new cards, no buy-now-pay-later, no “just checking” applications.
4. Save harder. Every extra percent of deposit lowers the lender’s risk and widens your options.
5. Talk to us before you talk to a bank. One well-placed application beats five declines.