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

Applying for a home loan with bad credit

If you have missed or defaulted a payment on a bill, credit card, your personal loan or any other type of debts in the past, these will often leave a bad mark in your credit file.

For many people getting a home loan can then become a challenge due to these previous credit issues but there is an alternative. 

Understanding how credit problems affect your ability to get a home loan is the best way to get back on track. So let's clear the air with 'bad credit' and help figure out where you really stand.

What is bad credit?

Bad credit, or adverse credit as it’s sometimes referred to, is when you’ve had a history of not keeping up with payments on your credit agreements and you’re then unable to get approval for new credit.

When you have had previous credit problems, many lenders will steer away from you. They consider a bad credit history to be a high lending risk as it concerns the lenders about your ability to make the regular repayments on a new loan.

What lands you in the high credit risk basket?

There are a few common reasons that can place you here. Some you may know. Some may surprise you. At the very least, it helps to know the reason why you might have been declined for a home loan.

Some of the more common reasons are:

  • Past unpaid bills and loans, or missed payments
  • Exceeding your credit card limit
  • Credit file with ‘too many' credit checks
  • Previously bankrupt
  • A divorce leaving you in debt
  • Registered credit defaults
  • Part 9 or 10 Debt Agreement
  • Temporary sickness without any payment during that period off work. 

Pepper Money understands that sometimes circumstances beyond your control can lead to a missed payment, default or even bankruptcy. That’s why we talk with you one-on-one to learn more and work towards a solution. Enquire online today.

How do you know if you have bad credit rating?

Most times you wouldn’t. It’s not until you apply for a loan that you usually find out. In the home loan approval process a lender will check your credit file. Before you’ve had time to explain yourself, you can find you are suddenly labelled non-conforming because of what your file shows, such as previous credit defaults or multiple credit checks.

How does bad credit rating lead to a declined home loan application?

Having a bad credit rating can definitely mean your home loan application can be declined. It will be due to being defined as 'outside particular credit criteria' a lender uses to decide if a loan is an acceptable risk.

A lender’s agreement with a third party insurer for Lenders Mortgage Insurance (LMI) can also be part of such a decision (if applicable to your loan). Not only do you have to pass the lender’s criteria, you also have to meet the requirements from the insurers, which are often quite strict. Even if you did manage to get approved, you are likely to get charged a higher interest rate than if you had a good credit score.

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

If you have been previously declined for a home loan because you have had a few credit defaults, it doesn’t mean you have to wait to be in the clear before you can apply again. You do have options.

At Pepper Money, we have a range of flexible home loan solutions to suit a variety of situations. As a specialist lender, we take a more holistic approach and look into both how the credit problems happened and considering your current circumstances, before making a decision.

If you’d like to learn more about our home loan options for bad credit, feel free to speak with one of our friendly Lending Specialists on 137 377. Alternatively, enquire online to request a call back and we'll be in touch.


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