Content updated 2 November 2026.
What does bad credit mean for a refinance application?
A credit score is only one part of the assessment. A lender may look at what happened, how recent it was, whether amounts remain unpaid and whether your current income and budget support the proposed loan. Explain the circumstances accurately rather than relying on a score alone.
Missed mortgage repayments and arrears
Prepare statements showing payment dates, any overdue balance and what has changed since the difficulty arose. A recent missed payment and an ongoing shortfall are different situations. Do not assume moving lenders will solve a budget that still cannot support repayments.
Paid and unpaid defaults
Check the creditor, amount, date and payment status on your credit reports. Paying a default does not automatically remove accurate information or establish eligibility. If an entry is wrong, use the correction process before relying on it in an application. Our home loans after defaults guide explains the topic further.
Hardship arrangements
A hardship arrangement is different from a default. Moneysmart explains that a formal financial hardship arrangement does not affect your credit score, although information about the arrangement can appear on your credit report. A lender still assesses the application and your present circumstances. Do not avoid asking for needed support because you expect to refinance.
Bad credit refinance document checklist
Use this to prepare for a discussion. Required documents and statement periods depend on the lender and your circumstances.
- Current mortgage: recent statements, balance, limit, rate, remaining term and any arrears or hardship correspondence.
- Credit reports: copies for each applicant and records supporting any corrected or paid listing.
- Income: payslips and employment details, or current self-employed financial records and other income evidence.
- Household budget: living expenses, dependants and any expected changes to income or spending.
- Other debts: credit card limits, personal loans, car finance, buy now pay later commitments and relevant tax debts.
- Property and purpose: security details, a value estimate and exactly what you want the refinance to achieve.
Include a short timeline of the credit issue, supporting evidence and what has changed. Before making another application, discuss which lenders may consider the scenario and what enquiry or credit check the next step involves.
How much equity do I need to refinance with bad credit?
There is no single equity requirement for every credit-impaired borrower. The lender’s accepted property value, maximum loan-to-value ratio (LVR), credit policy and the total amount needed at settlement all matter.
Illustration only: on a home valued at $750,000, a $525,000 mortgage is 70% LVR. Adding $15,000 of eligible debts and refinance costs would make the proposed balance $540,000, or 72% LVR. Neither figure establishes approval. A lower valuation, other secured debt or a lender’s policy can change the outcome.
Compare the whole cost of a bad credit refinance
Request a comparison of keeping the current loan and taking the proposed loan. Include discharge, application, valuation, legal or settlement charges, any fixed-rate break costs and any applicable risk fee or lenders mortgage insurance. Confirm which costs are paid upfront and which are added to the balance.
Compare both options over the same period, including the balance still owing at the end. A lower monthly repayment may come from restarting a longer term. If debts are consolidated, check how long they will take to repay and how you will avoid rebuilding them. Securing debts against your home increases the consequences if repayments cannot be maintained.
The refinance calculator can help explore figures, but it does not assess credit history, lender eligibility or every specialist charge. Use actual proposed terms for a personalised review.
What happens if my credit history prevents refinancing?
A declined refinance does not replace or cancel your existing mortgage. Its repayment obligations continue unless you agree a change with your current lender. Avoid making further applications before understanding the reason for the decision.
- Ask what prevented approval: distinguish a credit-report issue from affordability, equity or property policy.
- Check your credit reports: identify incorrect entries and request corrections through the lender or credit-reporting body. Accurate negative information is not erased simply because you want to refinance.
- Review the current loan: ask about available pricing or loan options. If repayments are difficult, contact the hardship team promptly rather than waiting for another application.
- Prepare a realistic review plan: identify the evidence or circumstances that need to change and reassess suitable lender policy before applying again. There is no guaranteed waiting period or future approval.
If another lender may consider the scenario, compare its full costs and sustainable repayments first. A more expensive loan is not automatically a solution. Free financial counselling may help if debt is difficult to manage; see Moneysmart’s steps after a loan rejection.
When preparing or seeking support may be the better next step
- The proposed loan is still unaffordable after realistic household expenses.
- Switching costs and extra interest outweigh the benefit you expect.
- The plan depends on a future refinance, rising property prices or uncertain income.
- There are unresolved credit-report errors or insufficient evidence of current income.
If you are behind on repayments or expect to miss one, contact your current lender’s hardship team promptly. If you receive a default notice or legal correspondence, seek appropriate assistance promptly rather than waiting for a refinance application. Moneysmart explains the options when mortgage repayments are difficult.
For preparation before a future application, read our credit-file preparation guide. It does not promise that a credit issue can be fixed within 30 days.
Book a confidential refinance review with Chris Berry to compare the current loan, realistic alternatives and the evidence needed before applying.
Sources checked 2 November 2026: Moneysmart credit reports and hardship information and debt consolidation and refinancing. Lender requirements remain subject to individual assessment.