You can refinance with bad credit, but the lender depends on what is on your credit file and how recent it is. A paid default from a few years ago, or a short run of late payments with a clear reason, can still suit mainstream lenders. Recent or unpaid defaults usually mean a specialist lender first, then a standard loan later.

How long credit problems stay on your file
Item on your credit report How long it stays
Default (at least $150, 60 days overdue) 5 years, marked paid once paid
Repayment history (missed payments) 2 years
Financial hardship information 1 year
Credit enquiries 5 years
Court judgment 5 years
Serious credit infringement 7 years

Which credit problems can a mainstream lender look past?

Lenders weigh three things: what happened, how long ago, and whether it is resolved. A small paid default with a reasonable explanation is very different from several unpaid ones. Late payments on a phone bill are read differently from missed home loan repayments in the last year. As a rough guide:

  • Paid defaults more than a year or two old, with a clear story: some mainstream lenders will consider them.
  • Missed home loan repayments in the last six to twelve months: most mainstream lenders will want that period behind you.
  • Unpaid defaults, recent defaults or several of them: usually specialist lenders, at higher rates and lower loan-to-value ratios.
  • A completed hardship arrangement: the flag stays for one year; a lender will ask what caused it and how things have changed.

Why refinance to a specialist lender at all?

Because a specialist loan can be a planned stage, not the end point. If your current lender is about to charge default interest, or you need to consolidate expensive debts, a specialist loan can steady things while your file ages. After 12 to 24 months of clean repayments, many borrowers refinance again to a standard rate.

The gap is real. On a $450,000 loan over 25 years, 8.5% costs about $3,624 a month and 6.0% about $2,899, a difference of $724 a month. That gap is the cost of staying with a specialist rate longer than needed.

What will the new lender check?

  • Your credit report from the bureaus the lender uses, including repayment history on your current home loan.
  • Six to twelve months of loan statements, to see recent conduct. The guide to what lenders look for in bank statements covers the rest of your accounts.
  • A written explanation of what happened and why it will not recur. A letter of explanation template helps.
  • Your equity, because specialist lenders lend less against the value.

Should you fix your credit file before applying?

Check it first. Errors are common and correcting them is free. Paying an outstanding default will not remove it, but it changes the listing to paid, which lenders read better. Avoid several applications at once: each one adds an enquiry that stays for five years. The guide to credit scores explains how to get your reports.

Can you consolidate debts when you refinance with bad credit?

Often, and it is one of the main reasons people do it, provided the property has enough equity. Folding a credit card or personal loan into the home loan can lower the monthly cost and remove the debts that caused the problem. The guide to debt consolidation home loans covers how it is assessed, and cash-out refinancing covers releasing equity.

Questions people ask

Can I refinance with a default on my file?

Yes, especially if it is paid and more than a year or two old. Recent or unpaid defaults usually mean a specialist lender, then a second refinance later.

Will refinancing hurt my credit score?

Each application adds an enquiry, so applying to one well-chosen lender is better than several. Repaying a new loan on time builds your history back up.

What if I am already behind on my home loan?

Talk to your lender about hardship before you fall further behind; it is a right under the National Credit Code. The guide to mortgage hardship help explains the steps.

Charles Touma reads your credit file before any application goes in, so you only apply where it fits, and plans the step back to a standard rate. A free 30-minute call covers what is on your file and which lenders will look at it. General information only, not credit advice; lender policies and fees change, and your own figures decide what suits you.

Sources: OAIC, what stays on a credit report; OAIC, repayment history and defaults, checked 20 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.