Bad Credit Mortgages
Shane Frank, Mortgage Adviser at The Mortgage Broker Ltd discusses bad credit – what this means if you are applying for a mortgage and how to check if you have it.
What exactly is bad credit?
Bad credit, or adverse credit is a record showing how someone who hasn’t paid their bills on time. Typically this could be for a number of reasons, losing their job, death of a loved one, redundancy or just simply living beyond your means.
Missed payments can have all sorts of negative impacts on your credit report, which lenders will look at when you apply for a mortgage.
Will anyone lend to me with bad credit?
Lenders have their own rules about who they will lend to. Unfortunately, most of the high street lenders have a set criteria that you have to meet to get access to their preferential rates.
In recent months, high street lenders have started to become more lenient with small amounts of adverse credit. If you are unable to proceed with a high street lender there are lots of specialist lenders that may be able to lend to you.
What is a credit file?
A credit file is a snapshot of a client’s conduct, based on paying on time. It holds information about what commitment they’ve had to their creditors and what their income is, name, address, national insurance number. This is the type of information that will be checked when you apply for a credit card or a loan.
The credit file is typically what lenders are actually looking for in terms of information, when they are considering whether or not to lend to clients.
What is typically in a credit file?
A credit file can include any history of adverse credit or bad credit. It will also tell the lender how you have conducted yourself financially and where you’ve lived and worked. All those sorts of things are taken into account when lenders are looking at your credit file.
How can I check my credit file?
Here at The Mortgage Broker, we recommend ‘check my file.com’. It is able to pull information from the three major credit sourcing agencies, Experian, TransUnion and Equifax.
Lenders will all score differently with different credit rating agencies and sometimes credit referencing agencies do hold misinformation. It may be that the correct information is registered with one credit referencing agency, but not picked up by another. With ‘check my file.com’ it’s possible to look at your conduct across all three major credit reporting agencies just to make sure you are not missing anything.
Simply input your information, your name, address where you are. The referencing agency will then ask you to input your card details, which are used to trace your history and generate your credit file containing all of your financial history, where you’ve worked and where you’ve been living. This will give you an indication of your financial standing, which you can bring to your mortgage adviser.
How does a credit file differ from a credit report?
A credit file shows your history across all three major referencing agencies, but also includes your income and your employment history. It is used to assess your creditworthiness.
A credit report doesn’t have your income, employment history or assets and provides a snapshot of your conduct across your financial commitments.
How can I improve my credit score?
Make sure you’re on the electoral roll. It doesn’t matter how good your credit worthiness is, if you’re not registered on the electoral roll and lenders can’t see where you’ve lived, that’s almost as bad as having no credit at all.
If you’re looking at building your credit score, you could try something like getting a credit card and make sure you’re responsible with it. Pay off the full balance every single month and this can show that you are a responsible borrower.
Don’t use payday loans and ensure you’re not financially associated with anybody. Housemates’, friends’ or partners’ financial statuses could have an impact on your credit score in the future.
Can I get a mortgage with bad credit?
In theory, yes, it depends on the history. What you’ve done in the last two to three years and the last 12 months is important, because if you can show that you have conducted yourself well, then historic bad debt may no longer affect you.
If you’ve missed payments in the last 12 months, it’s going to be very difficult to get a mortgage. Whether you can get a mortgage depends on the severity of the adverse event and when it occurred.
Can you get a mortgage with a 500 credit score?
Yes it’s possible to get a mortgage with a score of five hundred, and potentially lower than that. Typically First Time Buyers haven’t got any credit history at all. Perhaps they’ve lived with parents up until now and they’ve not got any credit cards so far.
Of course it depends on the individual and their financial conduct, but in some circumstances a low credit score will not necessarily reflect financial irresponsibility.
Can I get a mortgage with a CCJ and what does it stand for?
A CCJ is a County Court Judgement, which is when a creditor takes you to court to force you to pay the money back that you owe.
You could potentially get a mortgage with a CCJ, it depends on the severity, or the amount outstanding on the CCJ and when it was registered. If and when the CCJ was paid back, it will also make a difference.
What happens when you have a CCJ?
You’re summoned to court in order to get a hearing in front of a judge. The judge will listen to the creditor to ascertain whether or not they think that the CCJ is warranted and will either force you to pay back the money or will come to an arrangement with the creditors to be able to pay back the money over a period of time.
That CCJ will be then logged on your credit file for up to six years, whether or not you pay it off.
How do I get rid of a CCJ?
If you pay off with a settlement within a month of it being registered, you can apply to have the CCJ removed from your credit file. Otherwise, If the CCJ is settled after that, it will stay on your credit report for up to six years and then it will come off automatically.
How bad is a CCJ?
It may affect your ability to get a mortgage or obtain future credit, but it depends on how bad it is. It’s not something you’re going to want to have on your file if you’re looking to get a mortgage, because that’s going to affect who the lender is going to be and your interest rates going forward.
It can also affect how much deposit you have to put down in order to obtain a mortgage if you have a CCJ, so you should avoid one at all costs.
What happens if I ignore a CCJ?
You risk further court action if you don’t respond to the CCJ or pay it as ordered by the judge. If you do get one, don’t ignore it, deal with it, come to an arrangement, get it paid.
Can I get a mortgage with a default and what is this?
It’s possible to get a mortgage with a default, like the CCJ, it depends on the severity and the age of the debt. Lenders typically look at how much the default is now, and anything over £250, they request more information about that default.
If you have a number of defaults registered in the last 12 months, it will affect your ability to get a mortgage quite severely. If, however, you have defaults registered tw to four years ago, the chances of getting a mortgage increase. You may need more deposit to match the risk for the lender.
A default is not as bad as a CCJ, but it will still affect your ability to get a mortgage and it will certainly affect the amount of deposit that you need to put down to obtain your mortgage, so it’s best avoided if possible. Like a CCJ it will be reflected in your credit file.
How badly does a default affect your credit rating?
Your credit score will be updated once a default was recorded, as it shows that you haven’t kept up to date with your payments. When you have a default registered, your credit score will be affected, but how severe it will be will depend on the severity of the default.
If you get multiple defaults on a credit report, then your credit score will go down and it may affect your ability to get a mortgage.
Can a default be removed from your credit history?
After six years it can be removed. After six years, if you’ve resolved the default, then yes, it will be removed.
Check your credit reports if you’ve moved recently, just to make sure former utility bills on your old address are repaid. This is a common problem and people don’t realise that they have defaults, once they’ve moved to a new address.
How can a Mortgage Broker help?
We have access to specialist lenders that will consider your application if you’ve had past adverse events or bad credit. Here at The Mortgage Broker, we can approach multiple lenders on the client’s behalf and make sure that we’re sourcing the best lender for their circumstance, whilst still sourcing the best rate available to you.
We will do all the hard work in terms of trying to get the best mortgage possible for your circumstances and taking into account anything that’s been registered in your history.
Make sure you’re on the electoral roll and check your credit report relatively frequently to make sure that there’s nothing on there that you’re not aware of. If you are moving house and you are sharing with people especially, make sure that you settle everything in full and on time before you move.
If you can’t pay your bills and you’re concerned about missed payments, talk to the lenders. Don’t ignore it, deal with it, speak to those who can help you. There are places you can go for help.
If you have any queries, navigate to the contact page on the TMBL website and get in touch with a member of the team. There is a webform or our phone number is also available and we’ll be happy to help.