If you’ve missed a payment or defaulted on a utility bill, credit card or personal loan in the past, then you might find yourself with a less-than-stellar credit score. If you’ve got credit repayment issues, getting a home loan can be a challenge.

This real life guide explains the credit report problems that might affect your ability to get a home loan and what steps you can take to improve your credit report.

What is bad credit?

Bad credit, or ‘adverse credit’ as it’s sometimes called, is when you have a lower-than-average credit score, which can impact your ability to get new credit.

What are the reasons for a lower credit score?

It helps to know the reasons why you might have been declined for a loan or credit card. Some common things that might lower your credit rating are:

  • Missed loan repayments
  • Missed or late credit card repayments
  • Exceeding a credit card limit
  • Multiple recent credit enquiries
  • Previous bankruptcies
  • Registered credit defaults
  • Part 9 or Part 10 Debt Agreement

What are the impacts of a bad credit score?

Unfortunately, a low credit score can mean that some lenders will not approve a loan application.  This is because the information on your credit report tells the new credit provider how you’ve treated existing and past debts, which gives them an indication of how you’re likely to pay back the new debt.  This is called ‘creditworthiness’.

Other lenders might accept your loan application – but they could apply a higher interest rate to your loan, because you represent a higher risk.

How long does bad credit last in Australia?

How long ‘bad’ credit lasts for is hard to quantify, as different elements are recorded for different time periods. Any credit issues (such as defaults) stay on your credit report for six years from the date they were recorded. This means that if you defaulted on a bill, it will still be reflected on your credit score for six years. Meanwhile the previous 24 months of repayment history from your open and recently closed credit accounts is recorded on your report. Credit enquiries (for example, applying for credit cards or loans) are split into two buckets; recent and historical enquiries. Recent enquiries are classed within the past three months, while overall enquiries are recorded for six years.

You could seek a review from a lending specialist who will do a complete your finances and take you through your options.

It’s always better to get into the habit of managing your money, rather than allowing credit card debt to grow.

If you’re self-employed your needs may even be more complex so speaking with a lending specialist is highly recommended.

What exactly is a credit score?

Credit reporting bureaus (well-known ones in Australia include Illion, Experian and Equifax) use credit reporting data to calculate an individual’s credit score. A credit score considers the following:

  • Your repayment history of loans and other credit facilities (specifically if you have missed minimum monthly repayments)
  • Any defaults
  • The types and numbers of credit limits
  • The dates credit facilities were opened and closed
  • The number of recent credit enquiries (like credit card, store card or loan applications)
  • The types of credit applied for

Credit scores typically range from 0 to 1000. Generally, the higher the credit score, the better.

As of 1 July 2021, banks are now required to provide a holistic picture of your credit history – showing both positive and negative data. This means that positive credit behaviour can balance out issues you’ve had in the past.

So, if you’ve had a couple of credit issues previously, then all is not lost – you can work to create positive credit activity that shows you’re a creditworthy borrower.

Our lending specialists help you access a free credit report upfront so you know how you look – before your loan application goes to a lender.

How can I keep my credit score healthy?

Be smart when applying for credit

Your credit report will show when and how many times you’ve tried to access credit, and this can impact your credit rating. Keep your credit score healthy by:

  • Only applying for credit when you need it
  • Doing your research beforehand – find out when a credit enquiry will be completed on your credit file
  • Not borrowing more than you can handle
  • Prioritising repaying existing debt before applying for more credit
  • Accepting a smaller credit limit whenever possible, and turning down credit limit increases that you may be offered
  • Speaking to your lender if you are struggling to make repayments

Do an annual credit health check

You can access your credit score for free every three months through credit reporting bodies IllionExperian and Equifax. This could help you:

  • Plan ahead so you’ll be in a good position when the time comes to apply for a loan or credit card. If your credit score needs to improve you can work on improving it before applying.
  • Contact credit reporting bodies Illion, Experian and Equifax if there are errors in your credit report. You can get any errors fixed for free.
  • Be alert to fraud. Check your credit report to ensure that no one is using your name or identity to take out loans or other credit.

If you need assistance a lending specialist can help you access a free report, and help you interpret the data so you can understand all your options.

What can I do if I have a bad credit history?

  1. Get on top of your credit report – and fix the problems

Firstly, obtain an up-to-date credit report so you know what you’re dealing with. Then you will know your credit score – and check for any mistakes that need to be fixed. From here a lending specialist can guide you on the best approach to improve your score – or take you through the immediate options if you need finance straight away


  1. Consider consolidating your debts

Consolidating debts may be an option. This may mean a personal loan or rolling multiple debts into your home loan. Fewer loans to repay each month may make it easier to manage your budget, and will minimise the number of open credit accounts on your credit file. With the right home loan you should also be able to save on interest each month making is easier to pay off your debt faster.


  1. Let a lending specialist shop around for you

Your credit score may have resulted in you being declined for a loan if you approached a lender direct. However there are others lenders or products that assist people with credit issues, or self-employed people with specific lending needs.

It’s important to remember that multiple credit applications within a short time frame can be harmful to your credit score – so it’s best to have an independent person like a lending specialist guide you.


  1. You may need to consider a home loan outside of the major lenders

Many major lenders now use automated credit decision systems where you can just become a number – not a person. This can be frustrating but don’t worry – there are options for you outside of mainstream lenders – and the loan features and rates are highly competitive.

What can I do if the banks have already declined my home loan application?

Understanding mainstream bank’s lending criteria can help

Major banks sometimes offer some of the lowest headline interest rates, however they also often have the strictest credit eligibility criteria. This means, for example, that their home loans are only available to customers with a good-sized deposit, a PAYG income with enough buffer to withstand rate rises, and a squeaky-clean credit history.

This means, as a borrower, you may have had no issues getting a loan previously, but you might be declined today because of changes to a lender’s credit policy and criteria. If your credit history is the only thing holding you back, you may want to consider the LJ Hooker Home Loans Access product.


LJ Hooker Home Loans offers real life loan options – we may be able to help

While it can be disheartening to have been declined a home loan due to your credit history, there may be light at the end of the tunnel. We look at each case on its merits, meaning your application is assessed individually by an actual person – taking into consideration your overall credit situation and providing solutions.

Your application is assessed on its overall merits, by a person, not simply judged against an overarching credit score by a computer. This means that if you have defaults or judgements on your credit report, we may still be able to consider your application.


The first step is to get in touch with us for an initial conversation. We can guide you without taking a risk on your credit score. Our local lending specialists are available to chat in person, online, or on the phone.

Check out our borrower guide for the self-employed

We hope you found this article helpful. If you'd like to discuss it further please fill in the form below and we'll be in touch.

This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.