Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
Refinancing with Bad Credit
Bad credit doesn't automatically prevent you from refinancing, but it does narrow your lender options and may affect your rate. The key is understanding what your credit file actually shows, what lenders in the specialist space will accept, and whether refinancing now is the right move or whether a period of credit repair will deliver a better outcome in 12–18 months.
I always pull a credit report before we discuss refinancing options for clients with credit concerns. People often overestimate how bad their credit file is, a small paid default from 3 years ago may not be the obstacle they think. Others underestimate it. Knowing exactly what's on the file lets us make an accurate recommendation rather than guessing.
What Counts as Bad Credit?
- Defaults: A debt listed as unpaid after 60+ days. Can be paid or unpaid. Remains on file for 5 years.
- Court judgments: A court order for payment of a debt. Remains on file for 5 years.
- Bankruptcy: Remains on file for 5 years after discharge (or longer)
- Repayment history: Late payments on existing loans and credit cards are now visible on credit files
- Multiple credit enquiries: Many applications in a short period signal credit stress
What Lenders Can Accept
Paid Defaults (Small, Under $1,000)
Many mainstream lenders will overlook small paid defaults, particularly utility or telco defaults older than 2 years. Refinancing may still be possible at close to standard rates.
Paid Defaults (Larger or Multiple)
Specialist non-conforming lenders are typically required. Rate premium of 0.5–1.5%. LVR capped at 70–80%. The older the default and the larger your deposit/equity, the better the outcome.
Unpaid Defaults or Judgments
Most lenders require unpaid defaults to be cleared before refinancing. Specialist lenders may consider unpaid defaults under $500 (often telco). Larger unpaid defaults generally must be cleared as part of the refinance, we can sometimes structure this into the new loan amount.
Bankruptcy (Discharged)
Most specialist lenders require 2–3 years post-discharge. Significant equity (30%+ in your property) meaningfully improves options. Higher rates apply.
When to Refinance Now vs Wait
Refinancing now makes sense if: your current rate is very high, the specialist rate (even with premium) saves you money, or your credit issues are old and the premium is small. Waiting makes sense if: your defaults are recent, they'll drop off the file in 1–2 years, and waiting delivers a standard rate that saves significantly more. We model both scenarios honestly.
The Path to Standard Rates
Non-conforming loans aren't permanent. After 12–24 months of perfect repayment history and with older credit issues, refinancing to standard rates often becomes achievable. We plan this exit from day one, so the specialist loan is a bridge, not a permanent state.
