If you presently hold a home loan with less-than-ideal credit, you can explore refinancing through a non-conforming lender under the following circumstances: 

• You can provide complete evidence of your income. 
• Your credit file no longer displays any defaults. 
• You’ve successfully cleared off your previous defaults. 
• Your outstanding balance is 80% or less of your property’s value. 
• Your repayment record reflects on-time payments for the last six months.  

What details does my credit file contain? 

 Your credit file includes information such as your name, date of birth, present and previous addresses, driver’s license number, employer, and past employer. 

It also comprises a record of all the loans you’ve applied for in the last 5 years, appearing as “Enquiries.” Additionally, elements like court judgments, court writs, and bankruptcy history are documented on your credit file. 

Who Faces Bad Credit? 

Many Australians with bad credit aren’t necessarily irresponsible or “bad.” Often, they’ve experienced tough situations like divorce, job loss, injury, or business failure, leaving marks on their credit file. 

Contrary to what you might think, people with bad credit aren’t just in distant suburbs. Even well-off neighborhoods can struggle when interest rates rise because of their larger mortgages and higher debt. This is known as a high Loan to Value Ratios (LVRs). 

Adding to the challenge, if you miss a couple of debt payments, even if you fix things later, those late payments can stick on your credit file for years. The Comprehensive Credit Reporting (CCR) regime from 2014 aims to help with this, but having a clear credit history with a poor repayment record might still affect getting a home loan. 

Although not all lenders share repayment history yet, it’s something to keep an eye on in the future. 

What Are Signs of Financial Stress? 

Before a blemish shows up on your credit file, there’s often a series of events that can lead to defaults or more serious issues. 

The Household Expenditure Survey by the Australian Bureau of Statistics (ABS) identified common financial stress indicators, including: 

• Difficulty raising $2000 in a week for something important. 
• Spending more money than received. 
• Struggling to pay utility bills (like gas, electricity, or telephone) on time. 
• Struggling to pay registration or insurance on time. 
• Selling possessions to make ends meet. 
• Going without meals. 
• Seeking help from welfare/community organizations. 
• Seeking financial assistance from friends or family. 

These indicators were most prevalent among younger households, with 70% reporting experiencing at least one of these scenarios in a 12-month period. 

Why Are Mortgages Denied by Banks? 

Australians with bad credit may face rejection for a home loan from major banks or lenders due to various factors. Whether it’s the nature of your bad credit or the magnitude of your defaults, the presence of blemishes on your credit file can often hinder your borrowing ability. 

This happens because it signals to the bank that you might not be a reliable mortgage holder. However, there are specialized lenders who focus on bad credit home loans and adopt a more practical approach when evaluating your situation.