Tips to Get a Loan with Bad Credit

• Explore Bad Credit Options: Some lenders accept small, paid defaults.
• Explore Lenders Who Can Help You: Specialist lenders can approve your application with a poor credit score.
• Get A Pre-Approval: Helps determine if you meet the lender’s basic eligibility criteria.
• Connect With A Credit Repair Agency: Check for errors on your credit file and remove them.
• Take Steps To Improve Your Credit Score: Ensure defaults are paid and outstanding debts are settled.
• Apply For A Joint Home Loan: Use the other partner’s good credit to apply.
• The Bigger Your Deposit, The Better Your Chances: Shows commitment and minimizes risk for lenders.

Why Refinance with Bad Credit?

• Lowers your monthly repayments.
• Gets you a longer repayment period.
• Helps you pay off all your debts sooner.
• Gives access to more features and flexible policies.

Tips to Refinance on Bad Credit

• Check With Your Current Lender: They may offer a lower interest rate or more flexible repayment terms.
• Short-Term Refinancing With A Specialist Lender: Approval is easier with flexible guidelines.
• Consolidate All Your Debts Into The Mortgage: Get a lower interest rate on the entire amount refinanced.
• Apply With A Co-Borrower: Improves chances of approval with a co-borrower who has a good credit score.
• Refinance With A Private Lender: High-rate unregulated loans secured by a second mortgage or a caveat.

What is my credit score and why is it such a big deal?

• Many people don’t know their credit file or score. In Australia, an Equifax Score below 500 is bad, and below 400 is very bad. A low score indicates poor credit-worthiness, leading lenders to mark applications as high-risk. However, some specialist lenders consider more than just the score. We’ve helped clients with scores as low as 200 and, when necessary, developed plans for them to improve their eligibility over 6-12 months.

What is CCR and how does it affect my score?

• Before Comprehensive Credit Reporting (CCR) began on 1 July 2018, credit files mostly reported negative events like defaults and judgments. Now, lenders must provide additional information under Consumer Credit Liability Information, such as 24 months of repayment history, account open and close dates, account limits, usual repayment amounts, and types of credit products held in the last two years. This offers a fairer view of credit-worthiness. Late payments under 60 days appear in the Consumer Credit Liability Information section, while defaults are in the Overdue Accounts section.

How do I improve my credit score?

• Order your credit file from Equifax and ensure there are no errors. Check for unwarranted charges from old contracts, black marks due to mistaken identity, and that your current address is updated.
• Pay your bills on time since defaults over 60 days and late payments of 15+ days negatively impact your credit score for five years. Clearing any defaults is vital for better mortgage approval chances.
• Avoid frequent credit enquiries, as more than two in six months can lead to rejections. Consider financial counselling and budgeting if credit cards are an issue.

Debt Agreement v. Bankruptcy

• Debt Agreement: Less damaging than bankruptcy, allows for manageable repayments and modifications.
• Bankruptcy: Severely affects credit, involves asset liquidation and strict restrictions.

What types of bad credit are accepted?

• • Too many credit enquiries
• • Paid and Unpaid defaults
• • Judgements
• • Bankruptcy
• • Part IX agreement (debt free agreement)
• • ATO Tax debt

What is a Part IX Debt Agreement?

• A legally binding arrangement under the Bankruptcy Act 1966. A Part IX Debt Agreement, under the Bankruptcy Act 1966, provides an alternative to bankruptcy for insolvent individuals. It allows for a structured repayment plan with creditors, managed by an appointed administrator. Once the terms are fulfilled, the debt is settled, and no further obligations remain. Unlike debt consolidation, which combines debts into a new loan, this agreement directly negotiates with existing debts. The agreement is legally binding and typically spans up to three years, or up to five years if you own a home.

How does a Part IX Debt Agreement work?

• Negotiation and Proposal: You negotiate to pay a manageable percentage of your debt with the help of a registered debt agreement administrator, who submits your proposal to the Australian Financial Security Authority (AFSA).
• Repayments: Make regular payments to the administrator, who distributes the funds to your creditors after deducting fees.
• Completion: Once payments are completed, creditors cannot pursue the remaining debt.
• Benefits and Eligibility: This prevents bankruptcy and benefits both you and your creditors. Eligibility criteria, including debt and income limits, apply.
• Financial Counselling: Seek financial counselling to understand the options and consequences.
• Fees: Be aware of varying fees for lodging the proposal and the administrator’s services.

Part IX Debt Agreement – How to Exit

Complete the agreed-upon terms or modify them if your financial situation changes. Ensure all payments are made and stay current to avoid disruptions. Work with your administrator to confirm all obligations are met. Early termination is possible by repaying the debt in full. Once completed, the agreement is noted on your credit report and the National Personal Insolvency Index (NPII). Develop a financial plan to avoid future debt and seek financial advice to rebuild your credit.

Part IX Debt Agreement – Can I Buy a Property?

You cannot buy property while in a debt agreement. Assistance is available for refinancing your home loan to pay off the debt agreement. Specialist lenders may help if you’re in a Part IX debt agreement. Most lenders consider your situation only if you’re discharged from the agreement. You can borrow up to 80% LVR if you’ve been in the agreement for at least 12 months with perfect repayments for the last six months.

Part IX v. Part X Debt Agreements

• A Part IX Debt Agreement is for individuals with lower levels of debt and income. It involves a simpler process with manageable repayments, without the need for a trustee. This type of agreement is less formal, less costly, and has specific income and debt thresholds. While it affects your credit rating, it also offers a flexible approach to debt management.
• Part X Debt Agreement, or Personal Insolvency Agreement (PIA), is for those with higher debt levels or complex financial situations. It does not have income or debt limits and requires a trustee to manage the process. This agreement is more formal, involves detailed planning, and can include lump-sum payments or asset sales, making it a comprehensive, more expensive solution.

My partner has bad credit, how do we qualify for a mortgage?

• Apply as a solo applicant.
• Common Debt Reducer home loan.
• One borrower two owners.
• Apply with a bank that can consider small defaults.
• Apply with a specialist lender.
• Recalibrate your timeline/Save up a bigger deposit.
• Request a free annual copy of your credit report from Equifax to review your credit history and identify any issues. Incorrect information can be fixed by contacting the credit reporting body, but defaults, even if paid, stay on the file for up to 5 years.
• Alternatively, contact Natalee at QLoans.au to look up your credit file, identify issues, and assess which lenders might accept your situation. This avoids additional credit enquiries that could lower your credit score further.

What can we do if we get declined?

• Work on improving your partner’s credit score.
• Wait for the adverse listing(s) to fall off your credit file.
• Save up a bigger deposit.
• Show stable employment and income.
• Avoid adding more credit enquiries to your credit file.

Property purchasing costs

• Minimum of 5% deposit
• Stamp duty
• Property title transfer fee
• Registration fees
• Conveyancing fees
• Inspections including building/strata and pest
• Home loan set up fees
• Lenders Mortgage Insurance (LMI)

Property selling costs

• Agent Fees
• Marketing Costs
• Conveyancing Fees
• Capital Gains Tax (CGT)
• Presale Repairs and Renovations
• Styling/ Home Staging
• Auctioneer’s Fees
• Lender Fees
• Moving Costs