By Chaice Paterson, CEO & Founder, Low Deposit Homes | Updated June 2026
Yes — first home buyers with credit issues can still buy in Australia in 2026, but the pathway depends on what’s actually on your credit file. A single $500 Telstra default cleared 18 months ago is treated very differently from a current Part IX debt agreement. Most lenders require a 2-year clean period after a default is paid, and specific lenders (sometimes called “non-conforming” or “near-prime”) will lend to buyers within that window at slightly higher rates. The most common path Low Deposit Homes sees: identify the credit issues, clear them with a specialist credit repair partner, then qualify under the 5% Deposit Scheme 6-12 months later. Here’s the detailed playbook.
What actually counts as “bad credit” in Australia?
Banks assess three things on your credit file:
Defaults — debts of $150 or more that weren’t paid within the required timeframe (typically 60+ days overdue). Defaults stay on your file for 5 years from when they’re listed, regardless of when you pay them.
Late payments — repayment history information (RHI) on credit accounts. A pattern of 30+ day late payments hurts your score even without defaults.
Insolvency events — bankruptcies (7 years on file), Part IX debt agreements (5 years from completion), Part X arrangements. These are the most serious markers.
Excessive credit enquiries — too many credit applications in a short period suggests financial stress, even if all approvals were successful.
Your credit score (typically 0-1000 in Australia) is a summary, but lenders look at the underlying file, not just the score.
How long after a default before I can get a home loan?
The key distinction is whether the default is still on your credit report or has been removed entirely.
If the default has been removed from your credit file (via successful credit repair): you can apply immediately. From a lender’s perspective, the default never existed. This is why credit repair is almost always the better path than waiting.
If the default is still on your file (paid or unpaid): most mainstream lenders apply a 2-year clean rule from the date paid. Some 5% Deposit Scheme participating lenders will still lend with a small paid default on file — case by case, depending on amount, age, and reason. Non-conforming lenders (Pepper Money, Liberty, La Trobe) will lend within shorter windows at higher rates.
Why credit repair is the recommended first step: removing the default entirely is a stronger outcome than waiting it out. Once the listing is gone, lenders treat you as if the issue never happened — full access to mainstream rates, 5% Deposit Scheme participating lenders, and standard application processes.
Can credit repair specialists actually remove defaults?
Yes — legitimate credit repair specialists succeed in removing defaults when there’s a procedural flaw in the original listing. Was the default issued correctly under privacy law? Was the buyer notified properly? Was the debt amount correct? Was the notice period observed? About 40-60% of challenged defaults are removed when there’s a procedural breach.
What credit repair cannot do: remove legitimately-listed defaults where the lender followed all rules correctly. Be wary of anyone promising “guaranteed removal” — that’s a red flag. Real Credit Repairers operates no-win-no-fee specifically because legitimate practitioners don’t promise outcomes they can’t deliver.
How does a new build with the 5% Deposit Scheme change the equation?
Lenders treat new build purchases under the 5% Deposit Scheme more favourably than established home purchases for several reasons. New builds have no risk of major hidden defects discovered post-purchase. The 5% Scheme means no LMI (lenders are conservative about LMI for credit-impaired buyers). And the deferred settlement structure (land settles, then construction takes 6 months) gives you time to demonstrate income stability between application and full draw-down.
For a buyer with a recently-cleared credit issue, this combination can flip a “decline” into an “approval” — particularly with brokers who know which 5% Scheme participating lenders are most flexible on credit history.
“The biggest barrier I see isn’t actually credit — it’s the buyer not knowing what’s on their file. Pull your credit report first, get any errors fixed, deal with anything legitimate, and you’d be surprised how often a ‘no’ becomes a ‘yes’ within 12 months.” — Chaice Paterson, founder of Low Deposit Homes
What’s the practical path from credit issue to first home?
- Pull your free credit reports from all three Australian credit bureaus — Equifax, Illion, Experian. They show slightly different information.
- Identify issues — defaults, late payments, incorrect listings, excessive enquiries.
- Pay or settle any legitimate outstanding debts (in writing, get confirmation).
- Engage a credit repair specialist to remove any incorrectly listed defaults entirely (LDH recommends Real Credit Repairers — no-win-no-fee).
- Stop applying for credit — every application creates an enquiry on your file. Wait 6-12 months minimum before applying for a home loan.
- Demonstrate stability — same job, same address, consistent savings pattern.
- Apply with a broker who understands first home buyer schemes and which lenders match your profile.
A real LDH client scenario: had a $500 Telstra default from a missed final bill when she moved house. Referred to Real Credit Repairers, who challenged the listing on procedural grounds (incorrect notification of default). Default removed from her file within 6 weeks. She qualified for a $720,000 home loan under the 5% Deposit Scheme with a mainstream participating lender at standard rates — exactly the same outcome she would have received if the default had never been listed.
Frequently Asked Questions
Q: Can I qualify for the 5% Deposit Scheme with bad credit? The 5% Deposit Scheme doesn’t have a specific credit requirement — eligibility is determined by the participating lender you apply with. Some 5% Scheme lenders are more flexible on credit history than others. A broker familiar with the scheme can match you to the right lender.
Q: Will bankruptcy permanently stop me from buying a home? No. Bankruptcy stays on your credit file for 5 years (or 2 years from discharge, whichever is later) and on the National Personal Insolvency Index for 7 years. After it falls off your credit file, you can generally apply for standard home loans again. Some lenders may consider applications during the 5-year window with significant equity.
Q: Does paying off old debts improve my credit score immediately? No. Paying a default updates it to “paid” status but doesn’t remove the listing — the default still appears on your file for 5 years from when it was originally listed. The “paid” status is still better than “unpaid” for lender assessment, but doesn’t restore your pre-default score.
Q: How much more do I pay if I use a non-conforming lender? Non-conforming lenders typically charge 1-3% above standard rates, depending on the severity of your credit issues. For a $700,000 loan, that’s $7,000-$21,000 per year in additional interest. Worth it if it gets you into the market years earlier; not worth it if you can wait 12-24 months for mainstream eligibility.
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Visit our First Home Buyer Queensland guide or First Home Buyer Melbourne guide for the complete pathway.
Low Deposit Homes operates under Winning Homes Australia Pty Ltd (ACN 633 321 758). All calculations are indicative. Individual circumstances may vary. This is not financial advice.