The bad credit basket: Is this really where you belong?

If you’ve missed or defaulted a payment on a bill, credit card, personal loan or any other type of debt in the past, these can leave a bad mark on your credit file.

These past misdemeanours can result in ‘bad credit’ which can make it challenging to get a home loan – but there may still be options to make your home loan dream a reality.

What lands you in the bad credit basket?

Some common reasons that could lower your credit score include: 

  • Past unpaid bills and loans, or missed payments
  • Exceeding your credit card limit
  • Credit file with ‘too many' credit enquiries
  • Previously bankrupt
  • Unmanageable debt following a divorce or other life event
  • Registered credit defaults
  • Part 9 or 10 Debt Agreement
  • Unpaid leave resulting in financial hardship

How do you know if you have a low credit score?

Unfortunately, most of the time you wouldn’t know – often it's not until you apply for a new loan that you find out about your credit rating. You could find you are labelled non-conforming because of what your file shows, such as previous credit defaults or multiple credit enquiries.


How can I improve my credit score in Australia? 

There are steps you could take to help prove your creditworthiness to lenders. As well as paying your loans and credit cards on time, only apply for credit when you need it and are confident of your situation. It might be a good idea to obtain a copy of your credit report to ensure there are no errors. You can access your credit score for free every three months through credit reporting bodies Illion, Experian and Equifax.

Our real life guide to your credit report provides more hints and tips on how to manage your credit history. 


How does a low credit score lead to a declined home loan application?

Having a low credit score can lead to your home loan application being declined if the lender perceives the risk of lending to you to be too high.  

Another impact of having bad credit is that it may impact your ability to secure Lenders Mortgage Insurance (LMI) with a third-party insurer. This insurance protects the lender against the potential losses that may be incurred if you’re unable to repay your home loan and is generally required for applications which have a deposit of less than 20% of the property’s full value.

So not only do you have to pass the lender’s criteria, you also must meet the requirements from the insurers.

Finally, if you do manage to get approved, you may be charged a higher interest rate than if you had a good credit score.


Do you need to wait until your bad credit history is cleared?

Not necessarily. If you’ve been previously declined for a home loan because of a few credit defaults, it doesn’t mean you have to wait to be in the clear before you can apply again.

Some non-bank lenders, like us, offer a range of home loan options to suit a variety of situations. As a non-bank lender, we take a more holistic approach and look into both how the credit problems happened in the first place and consider your current circumstances, before making a decision.

If the bank says no to your home loan, what do you do next? If your credit history isn't squeaky clean or your work's a bit unconventional or if your age and income don't fit the usual boxes, you might find traditional lenders shaking their heads. But that's okay.  

Where some just tick boxes, Pepper Money takes a far more real-life approach to finding you a workable solution.

It's all about being flexible--whatever your story, we assess your whole situation on its merits: how you got to where you are and where you're headed. And we provide a flexible range of loan products. If your situation is complicated in any way, we'll do our best to help. It's our specialty.

Talk to us at Pepper Money today. 

We understand that sometimes circumstances beyond your control can lead to a missed payment, default or even bankruptcy. That’s why we’re here to help. We’ll try to understand your individual situation and work towards a solution. 


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Want to find out where you stand?

We've got the online tools and calculators to help get your home loan journey underway. Work out how much you may be able to borrow and even quickly find out what indicative interest rate you might be eligible for.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

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