What are the different types of bad credit home loan?

Whether you’re investing in property or buying your first home, bad credit home loans can be a lifeline for people that get turned away from traditional lenders. But did you know there are different kinds of bad credit home loan, based on the circumstances of the borrower? Here are a few examples.

Paid and unpaid defaults home loan

Probably the most common type of bad credit home loan, these are for when a bad credit score is the result of a default.

Defaults occur when a person fails to make a legally required payment on time, usually on things like credit cards, household bills or personal loans. A missed payment becomes a default if it’s over 60 days late or if the lender has not been able to contact the debtor. A default stays on the person’s credit report for five years after the date the debt was due, even if they’ve paid it since.

While defaults can’t be erased from a credit report, they do show up as either paid or unpaid, so it’s worth repaying them to show a lender evidence of creditworthiness.

Discharged bankrupt home loan

When a person becomes bankrupt, they become an ‘undischarged bankrupt’, meaning they’re still working through the process of insolvency. Usually lasting three years, this time sees a trustee nominated by the Australian Financial Security Authority manage the bankrupt person’s financial affairs. Once this period is over, the person becomes a ‘discharged bankrupt’.

Bankruptcy stays on a credit report for seven years after the time the discharge has been made. Unfortunately, the reasons behind your insolvency bankruptcy are not part of your credit report, so traditional lenders will not see why a person got into that financial state. Sometimes, it is not their fault.

A bad credit home loan can be a way for discharged bankrupts to secure finance.

Debt consolidation home loan

When a person has many small unsecured debts they are unable to manage, such as credit cards or personal loans, they’ll often roll them into one package known as a debt consolidation home loan. This makes it far easier to manage, as now only one repayment needs to be made.

Whatever the reason for your bad credit, you can still secure financing by talking to the team at Redrock. If you’d like more information on how we can help you, get in touch today.