Bad credit does not automatically rule out refinancing in Australia. It does make it harder, more expensive, and more limited in choice. This article covers what "bad credit" actually means to lenders, which lenders will still consider you, what to fix before applying, and what realistic rates look like compared to a clean credit file.
Australian lenders access your credit report through bureaus including Equifax, Experian, and illion. Your credit score is a number that summarises your borrowing history, and anything below around 500 on the Equifax scale (which runs to 1,200) or below 500 on the Experian scale (which runs to 999) is considered poor. Scores in the 500 to 625 range are generally classed as fair or below average.
But the score itself is less important to mortgage lenders than what is actually on your file. The main items that create genuine problems are: defaults (debts listed as unpaid or seriously overdue), court judgments (a creditor has sued you and won), bankruptcies (Part IX debt agreements or full bankruptcy), and mortgage arrears (missed home loan payments showing on your current or previous loan). Patterns of missed payments on credit cards and personal loans also register, though these are typically less damaging than formal defaults.
Under comprehensive credit reporting (CCR), Australian lenders now see 24 months of repayment history across all credit accounts, not just the negatives. This works both ways. A recent history of on-time payments can partially offset older problems, while a history of consistent lateness makes things worse even without a formal default.
Yes, but not with most mainstream banks. The major banks (Commonwealth, Westpac, ANZ, NAB) and most tier-two lenders apply strict credit policies. A default of any size within the last two years, or mortgage arrears within the last six months, will typically result in a declined application regardless of income or equity.
The lenders that explicitly consider impaired credit files are non-bank lenders and specialist credit providers. In Australia, the main ones are Liberty Financial, Pepper Money, La Trobe Financial, and Bluestone Mortgages. These lenders have specific credit tiers for borrowers with defaults, arrears, or bankruptcies, with terms that reflect the additional risk they are taking on. Credit unions are a middle ground: more flexible than the majors, but usually not as accommodating as the specialist lenders above.
Specialist lenders are not lending blindly. They look at a combination of factors, and the stronger you are on the remaining ones, the more negotiating room you have on the credit issue.
Loan to value ratio (LVR). This is the size of your loan relative to your property's value. The lower your LVR, the more security the lender has if you default. Most impaired credit lenders require an LVR of 80% or below as a minimum. Some will go to 85% with mortgage insurance, but this gets expensive and the options narrow considerably. If you have built up significant equity, this works in your favour.
Employment and income stability. A solid, stable employment history and clear evidence of serviceability (your ability to make repayments out of your income) is essential. Specialist lenders want to see that the credit problem is in the past and your current financial position is stable.
The nature and age of the default. A paid default is better than an unpaid one. A default from four years ago is better than one from six months ago. A telco default for $200 is treated very differently from a mortgage default for $40,000. Context matters, and many specialist lenders will ask you to explain what happened.
This is where borrowers are sometimes caught off guard. Specialist lenders charge significantly more than mainstream banks, and the rate you receive depends on your specific credit profile.
As of mid-2026, a borrower with a clean credit file might access a variable rate around 6.0 to 6.5% per annum from competitive lenders. A borrower with a paid default and good equity might be offered rates in the 7.0 to 8.5% range from a specialist lender. A borrower with more serious credit problems, recent arrears, or higher LVR could be looking at 9% or above.
The cost difference on a $500,000 loan between a 6.5% rate and an 8.5% rate is around $700 per month. That is a meaningful number, which is why the goal with impaired credit refinancing should usually be to stabilise your situation in the short term, then refinance again with a mainstream lender in 12 to 24 months once the credit picture improves.
A few actions can meaningfully improve your position before you approach any lender. First, get a copy of your credit report from all three bureaus (Equifax, Experian, illion) and check for errors. Credit report errors are not uncommon, and a listing that is incorrect or should have been removed can be disputed and fixed. Second, pay off any outstanding defaults if you can. A paid default still shows on your file, but lenders treat it more favourably than an unpaid one. Third, do not apply for additional credit in the months before you refinance. Every credit application leaves a hard inquiry on your file, and multiple inquiries in a short period can further depress your score.
If you are currently behind on your mortgage, the most urgent step is to contact your lender about a hardship arrangement. Bringing the account current before applying to refinance is far more effective than trying to refinance while in arrears.
Refinancing with bad credit is not always the right move. If you are currently paying a high interest rate and have equity, refinancing to even a specialist lender rate may reduce your monthly payments and stop the financial bleed. But if you are close to clearing the problematic listings from your file, waiting six to twelve months to refinance with a mainstream lender could save tens of thousands in interest over the life of the loan.
The decision depends on your current rate, your equity, the age and severity of the credit issues, and how quickly you can qualify for mainstream lending again. Running both scenarios with actual numbers is the right way to approach it.
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