Life doesn’t always go as planned, and unforeseen financial issues can make it hard to pay your bills on time. Bad credit doesn’t mean you’re locked out of getting a home loan forever – you might just need to consider other options than the major banks.
What does ‘bad credit’ really mean?
When you’re applying for finance, whether it’s a car loan, a personal loan or a home loan, you often have to go through a credit check to determine your credit score.
There are a number of different things that affect your credit score, including:
- Past defaults, even if you’ve paid them back
- Previous bankruptcy
- Late payments on your credit card
- Arrears on your current mortgage
- Being refused credit in the past.
Even if your credit issues were in the past and you’ve since recovered, they may still show on your credit score.
While bad credit can make it difficult to get a loan from a major bank, it doesn’t mean you’re locked out of getting a home loan forever. There are some lenders, like Bluestone, that don’t do automated credit scoring at all and prefer to look at the circumstances behind any previous defaults before making a decision.
Not all defaults are treated the same
Whether or not you can get a home loan with a default is likely to depend on a few factors:
- The size of the default. Generally, it’s easier to get a home loan with a default under $1000.
- How long it’s been since the default. Defaults that were more than one or two years ago may not impact your ability to get a home loan in the same way that a more recent default could.
- The reason for the default. In many cases, financial irresponsibility is not the reason for a default – it could be due to unforeseen circumstances like medical expenses, a relationship breakup or an unexpected job loss. If there’s a clear reason for your default, some lenders may take a more understanding approach to your situation.
What to consider when looking for a bad credit home loan
If you’re looking to apply for a home loan with a less than perfect credit history, there are a few things that may help improve your chances of success.
Look beyond the mainstream banks
Mainstream banks have strict lending criteria and it’s likely they will decline your application if you don’t fit into the typical borrower mould.
However, non-banks like Bluestone aren’t bound by the same rules and are often able to help borrowers the banks can’t help. At Bluestone we have a range of products that are designed to meet the needs of borrowers who are recovering from financial difficulties and need a more flexible approach to assessing their financial position.
Apply with a lender who doesn’t credit score
Some lenders use automated credit scoring as part of the assessment process. Using this system, your application can be rejected before a human even gets to look at it.
On the other hand, lenders like Bluestone take a more personal approach to credit assessment. We’ll take the time to understand the full story behind any previous defaults so we can make an informed decision on your application.
If you’ve had financial difficulties in the past, you may still be able to achieve your financial goals in the future. We have a range of home loans for borrowers with bad credit – find out if Bluestone is a good fit for you here.