Bad Credit Mortgages
Clean up your credit rating
When applying for a mortgage, lenders will scour your financial past to decide whether you are responsible enough to handle borrowing the amount you require. This is when past financial difficulties can come back to haunt you long after they've passed. The smallest step out of line, such as missing a debt repayment, can blight your credit rating and make it difficult for you to get a mortgage. It's therefore imperative to keep a good credit rating if you are thinking of applying for a mortgage in the near future.
A few lenders automatically reject an application from someone with a less than perfect credit rating. Even if you have never had credit before – and therefore have no credit history – you could be rejected because lenders have no evidence that you are reliable with your finances. Unfortunately, rejections and continual applications for credit are recorded negatively on your credit rating - which can make it even more difficult to secure a loan or a mortgage in the future. So you should strive to clean up your rating before applying for a mortgage.
How do I know if I have a bad credit rating?
You won't be able to assess your credit history unless you've seen a copy, so contact one of the agencies, such as Equifax, CallCredit, or Experian, who will give you access for a small fee (usually around £2). Alternatively, you can sign up for a free 30-day trial with Experian or Equifax but do remember to cancel once the trial comes to an end – otherwise you will be charged.
If you have any black marks, such as missed payments, on your credit record, check they are accurate – companies can, and do, make mistakes that can negatively impact your score. If there is any false information you should be able to get it rectified relatively easily, but you will need to contact the credit reference agency and the company that recorded the false information asking them to change it.
You can also add a 200-word statement, called a Notice of Correction, to your credit report to explain the mistake. For example, if you have missed a payment or two because you were made redundant or you were taken ill. The credit reference agency will add this for you.
If your credit report is correct, you will need to clean up your rating, which can take time, or get the help of a specialist broker for a mortgage.
County Court Judgments
If you owe a company or person money they can make a claim for it under the Consumer Credit Act 1974 through the county court. The County Court Summons or County Court Judgment (CCJ) that follows will order you to pay the amount of money owed and is recorded by credit rating agencies on your credit record. A CCJ will not result in a criminal record but it will negatively impact your credit rating.
Getting a mortgage with a bad credit score
If you have a bad credit rating or past CCJs, it is still possible to get a mortgage but you'll usually be offered less competitive deals than those who don't. You may have to pay high fees, pre-payment penalties and extra upfront fees. These lenders are taking advantage of borrowers with a poor credit history because they know that your loan options are limited. If you are in this situation and decide to get a mortgage, make sure that you shop around extensively, and speak to a number of brokers to get the best deal possible.
Cleaning up your credit history
It's best to start thinking about your credit history far in advance of applying for a mortgage. For instance, a missed payment can still be taken into account for around six years after it's happened.
However, it's not just your financial past that impacts your credit score. How long you've been with your current employer; at your current address; your current income; your job type; your age; and, your relationship status all have a bearing on your likelihood of being accepted for a mortgage.
Fortunately, there are a few quick and easy steps you can take to improve your suitability in a lender's eyes.
Top tips for improving your credit score
Get on the electoral register This is used by lenders to confirm that you live where you say you do. In a lender's eyes, stability is good so if you've been in the same property for a number of years, it will work to your advantage
Close dormant accounts If you have a number of credit cards, or current accounts with overdrafts that you are no longer using, close them down. A large amount of credit may prevent lenders from giving you more
Don't miss payments If you have credit already - such as a credit card - don't forget to keep up with your monthly repayments. If you are continually missing payments, this will go against you and your credit rating
Limit your applications If you get turned down from one mortgage lender it can be tempting to apply to another one immediately. But every time you apply for credit it leaves a 'footprint' on your credit report - if there are a lot of these in a short space of time, lenders are less likely to lend to you.
- Check your credit rating twice a year
- Correct any mistakes on your credit report
- There are several steps to take to improve your credit report
If possible, wait to get a mortgage and take steps to clean up your credit rating first