Declined for an Investment Property? What to Do When the Bank Says No Due to Credit History
It’s a situation almost every property investor will face at some point: you approach the bank to borrow money—maybe for your next property, a renovation project, or even a simple top-up—and they say no. When the reason is tied to your credit history, it can feel especially frustrating. But you’re not out of options.
Banks assess every loan application by looking at three things: the Loan-to-Value Ratio (equity), your income, and your credit history—sometimes called the “character” test. If the decline was due to your credit report, it’s considered a credit hurdle. Let’s look at what that means and how to navigate it.
Understanding Your Credit Report
Your credit report is a record of how you’ve managed debt in the past: utility bills, credit cards, personal loans, and more. It includes payment history and notes any missed or late payments, even if you’ve since paid the debt.
Each line in your report has a number showing how late a payment was—‘0’ means on time, ‘1’ means 30–59 days late, and so on. Even if you’ve never had an unpaid debt, a consistent pattern of late payments can flag issues with financial management in the bank’s eyes.
Paid vs Unpaid Defaults
The size of the debt matters less than its status. If a default (typically any debt over $100) is unpaid, banks are likely to instantly decline your mortgage application. It suggests you either can’t afford to pay or aren’t taking your finances seriously.
The first step in these situations is to pay the debt immediately. Once it’s marked as paid on your report, the chances of approval—especially with a second-tier lender—increase significantly.
What If You Dispute the Debt?
Sometimes you may find a default on your report that you genuinely believe shouldn’t be there—perhaps a flatmate didn’t cancel a power account, or a gym membership kept charging you after you moved overseas.
You have the right to dispute incorrect entries, but be prepared: the process isn’t always quick. You’ll need to provide evidence and follow up regularly with the credit agency or service provider involved.
Pro tip: be kind to the customer service reps—they deal with angry callers daily. If you're calm and polite, your case is more likely to move faster.
What Are Your Options If You Have a Serious Credit Issue?
If the issue is more serious—like multiple defaults, a past bankruptcy, or debt collection—you’ll need to consider alternate strategies. Here are a few options to explore:
1. Apply Under Your Partner’s Name
If you’re buying as a couple and only one person has credit issues, it may be possible to submit the application under the other person’s name. This works best when the person with good credit also earns enough income to support the loan and household expenses. It’s tight, but doable.
2. Use a Trust Structure
Some investors set up a trust to purchase the property, with only the credit-worthy partner listed as the borrower. You’ll need legal advice to do this correctly, but it can be a smart workaround for couples with uneven credit histories.
3. Consider Non-Bank Lenders
Some lenders specialise in helping people with credit history issues. These lenders charge higher interest rates—often 10–18%—to reflect the additional risk. But they can offer a short-term solution to get you into a property while you work on repairing your credit.
4. Wait for the Credit Issue to Drop Off
Defaults are automatically removed from your credit report five years after they’re paid. Bankruptcies are removed four years after discharge, which typically happens after three years—so about seven years in total.
If your credit blip is almost old enough to expire, it may be worth waiting it out. But this works best if the bank never sees the default in the first place. Once you’ve applied and been declined, that history is on their radar—even if it’s removed a month later.
That’s why it’s always best to check your credit report before applying. Presenting your application in the best possible light the first time increases your chances of approval.
Always Start by Asking “Why?”
If your mortgage was declined, find out exactly why. Get a copy of your credit report and compare it to what the bank saw. Knowing the cause allows you to make a clear plan—whether that means paying down debt, fixing an error, or applying elsewhere.
And when you're ready, speak to a mortgage adviser. They’ll help you understand your options, match you with a suitable lender, and guide you through a new plan to move forward.