Bad Credit Mortgages
Bad Credit Mortgages
A lot of people assume that they can’t get a mortgage when they have bad credit. This isn’t always the case though and this makes it worth building a better understanding of how your credit will affect your mortgage applications.
The health of your credit score can impact many aspects of life. This can be a big challenge to overcome for many people, with bad credit making it harder to achieve your goals and putting you in a difficult position compared to those with good credit. When it comes to something like a mortgage, a poor credit history can have a big impact on your ability to find the right product.
What is bad credit?
The UK’s system for credit is fairly easy to understand. Everyone has a score from 0 to 999, with 999 being a perfect score. Making timely repayments on loans, closing unused credit cards, and joining the electoral register are all examples of things that can improve your credit score.
Alongside this, though, there are also plenty of actions that can result in a credit score being lowered. Not making repayments on time, having a number of unsuccessful credit checks, and even opening a joint account with a partner can damage your score.
Having a low credit score, however, isn’t the only piece of the puzzle when a mortgage provider is assessing your eligibility for their loans.
What do mortgage providers view as bad credit?
No Credit History
If you haven’t taken out loans or credit in the past, it’s unlikely that you’ll have any sort of credit history for lenders to use. This may make it hard for them to be confident in your ability to make regular repayments, often resulting in those without a credit history finding it harder to secure mortgages.
Making late payments or missing them altogether on past loans and mortgages will make you look unreliable to a lender. They might assume that you will have similar issues in the future, making it riskier for them to lend to you.
A county court judgement (CCJ) is a court order that is used in the UK when someone fails to pay the money they owe. You can often avoid this mark on your credit history, but it can be hard to wipe it away.
Individual voluntary arrangements (IVA’s) are a debt solution that enables you to pay your debts back over time. This can make it much easier to manage large outstanding debts, but will also show future lenders that you’ve struggled in the past.
Debt Management Plans
Similar to an IVA, debt management plans are used to help you to pay back large debts. You make payments to a DMP provider who distributes your payments to your creditors. This will still leave a negative mark on your credit record but shows lenders that you are committed to making repayments.
Mortgage providers don’t want to repossess houses or force people into bankruptcy. If you’ve gone through this in the past, you could find it extremely difficult to get a regular mortgage in the future.
Taking out payday loans can be viewed as a way to cover financial gaps. At the same time, though, they will also signal to future lenders that you may not have control over your money, making it harder for them to lend to you.
As you can see, mortgage providers are concerned about far more than just your credit score when they are assessing your eligibility for their products. Here at The Mortgage Broker, we can help you to understand what your situation means with regards to getting a mortgage and the options that you have.
Will anyone lend to me with bad credit?
Yes, many lenders will consider your application even if you have bad credit. In fact, some lenders are specifically geared towards people in this position.
Unfortunately, though, you aren’t likely to get the same products offered to you as those with a good credit history.
Some lenders will ask you to pay higher rates, while others might ask you to take on a guarantor for your mortgage. It’s likely you may need to put down a bigger deposit compared to someone with a good credit history.
In many cases, you can end up saving a lot of money if you work to improve your credit before you apply for your mortgage.
How do lenders calculate your credit score?
There are three main credit firms in the UK that are used by lenders to calculate credit scores. Experian is one of these organisations and is one of the most commonly used when you make an application for a loan.
Alongside the scores provided by these third-parties, many lenders will also use their own algorithms to establish your eligibility for their mortgages. This will incorporate the scores they get from credit reference agencies, along with the information you provide when you make your application.
This can make it confusing if you’re refused credit, with many people assuming that simply having a positive score is enough.
How do I improve my credit score?
Improving your credit score is possible when you take the right steps. As the first stage in this process, you’re going to need to figure out what your current score is. Credit reference websites will give you this information.
Once you have an account with a credit reference agency, you will be able to see your current score, along with a host of hints and tips that could help you to improve your credit. This will give you an excellent starting point, but there is still lots that can be done to improve your credit score.
Pay off Debts
Paying off your existing debts will be an excellent way to improve your score. Many people make use of a credit card for everyday purchases and make timely repayments to evidence their creditworthiness.
Disassociate your Finances
While it might be nice to share your financial life with your partner, this can make their credit history impact your own. Disassociating your finances could improve the situation for both of you, making it worth considering closing your joint accounts and going it alone until you’re in a better situation.
Unused credit accounts will show up as a mark on your credit history, but closing them down may also improve your score. This makes it worth closing your credit cards, loans, and any other accounts you have when you no longer need them.
Get Professional Help
There are a lot of professionals out there that can help with your credit. The action you need to take will depend on your financial situation, and this means that you need an expert eye to see the best route.
Improving your credit score can be a time-consuming process, but it will always be worth the work in the end. You have to be willing to change your lifestyle if you’re going to achieve your financial goals.
First Time Buyers or Remortgages – will the process be different?
The process that first-time buyers have to go through when applying for a mortgage is very different from the one that you will go through when remortgaging your home.
Bad credit may not play as significant a role in the decision a lender makes when you’ve already had a loan with them. If you’ve already proven yourself reliable by making payments on time, they will find it much easier to trust you for another mortgage product. In some cases, they may not even run proper credit checks when you’re remortgaging your home.
For first-time buyers looking for mortgages, there is likely to be more scrutiny. The lender will review every aspect of your finances, making it challenging for those who have bad credit scores or other negative marks on their history.
Getting a bad credit mortgage
A lot of people struggle with bad credit, but it would be unfair for lenders to reject every one of them when it comes to a mortgage. Your record doesn’t always reflect your current financial position, and many lenders know this.
Here at The Mortgage Broker, we work extremely hard to help out clients to find the right mortgages for them, taking into account their financial past. Our team of mortgage experts are always happy to provide advice and support, but we can also take you through the process of making your application.
Why Use The Mortgage Broker Ltd?
At The Mortgage Broker Ltd, it’s our vision to become the UK’s most trusted and respected mortgage broker. The only way for us to achieve this is by providing straightforward and transparent advice to each and every one of our clients.
From your first call to your last, we put customer service first before all else so you can be confident in getting expert mortgage advice.