Refinancing With Bad Credit: What Are Your Options?

By Jason Given · 2026-08-16 · 7 min read

Why your credit score matters for refinancing

When you refinance, the new lender pulls your credit file. They see every loan application, credit card, default, and late payment from the last 5-7 years. It is a complete picture of how you have managed credit - and it directly determines which lenders will approve you and at what rate.

Major banks - Commonwealth Bank, ANZ, Westpac, NAB - typically require credit scores above 600-650. Below that threshold, applications are either declined outright or referred to manual assessment teams where approval is unlikely without strong compensating factors like high equity or a long employment history.

But a low score does not mean no options. It means different options. Non-bank and specialist lenders exist specifically for borrowers who do not fit the major bank mould. Their rates are higher, their features may be more limited, but they provide a pathway that the big four will not.

The key is knowing which lender matches your specific credit profile - and that is where a broker adds genuine value. Submitting to the wrong lender wastes time and adds another credit enquiry to your file, making things worse.

What counts as bad credit?

Credit issues range from minor to severe, and lenders weigh each type differently. Here is what affects your credit score and by how much:

• ✗Late payments (30+ days overdue) - moderate impact. A single late payment can drop your score by 25-50 points depending on severity and recency.
• ✗Defaults (unpaid debts reported by lenders) - significant impact. Stays on your credit file for 5 years from the date recorded. Even a small default ($150 phone bill) can block major bank approval.
• ✗Court judgments - severe impact. Stays on your file for 5 years and signals serious credit problems to any lender.
• ✗Bankruptcy - most severe. Stays on your file for 7 years and restricts your options significantly. Most lenders require at least 2 years post-discharge before they will consider an application.
• ✗Too many credit enquiries in a short period - moderate impact. Each application creates an enquiry, and multiple enquiries suggest desperation or serial decline.
• ✗High credit card utilisation (using most of your limit) - moderate impact. Lenders see maxed-out cards as a sign of financial stress, even if you pay the minimum on time.

Your refinancing options by credit tier

Your options depend on where your credit score sits. Here is what to realistically expect at each level:

The two-stage strategy

If your credit is not strong enough for a mainstream lender today, the most effective approach is a staged refinancing strategy. It is not instant, but it is realistic - and Lendology manages both stages.

• 1.Stage 1: Refinance now to a specialist lender. Get off the worst rate, stabilise your situation. Even moving from a default rate of 9%+ to a specialist rate of 7-8% saves thousands per year while you rebuild.
• 2.Stage 2: Spend 12-24 months repairing your credit. Pay everything on time. Reduce credit card limits. Clear outstanding defaults if possible. Every month of clean credit history improves your position.
• 3.Stage 3: Refinance again to a mainstream lender at standard rates. With 12-24 months of clean repayment history on your specialist loan, your score has improved and your options have expanded. This is where the real savings kick in.

This approach works because specialist lenders report your repayment history to credit bureaus just like major banks do. Every on-time payment rebuilds your profile. Lendology sets a diary reminder to reassess your position at the right time and manages the second refinance when you are ready.

How to improve your credit score

Whether you are preparing to refinance now or building toward a better rate in 12 months, these are the most effective steps you can take:

• 1.Pay every bill on time. Payment history is the single biggest factor in your credit score. Set up direct debits for everything - mortgage, utilities, phone, insurance. One late payment can undo months of progress.
• 2.Reduce credit card limits. Lower limits improve your utilisation ratio. If you have a $10,000 limit but only use $2,000, ask your bank to reduce the limit to $3,000-$4,000. Lenders also assess your capacity to repay the full limit, so lower limits improve borrowing capacity too.
• 3.Close unused accounts. Afterpay, store cards, old credit cards - every open credit facility counts against your borrowing capacity and adds complexity to your credit file. Close anything you do not actively use.
• 4.Do not apply for new credit unless necessary. Each enquiry reduces your score by 5-10 points and stays on your file for 5 years. Avoid the temptation of retail finance offers and "just checking" pre-approvals.
• 5.Check your credit file for errors. Incorrect defaults or wrong addresses can be disputed and removed. Request a free copy of your credit report from Equifax, Experian, or illion and review every entry.
• 6.Negotiate with creditors to remove paid defaults. Some creditors will agree to remove a default listing once the debt is settled in full. This is not guaranteed, but it is always worth asking - a removed default can improve your score substantially.