Bad Credit – Can I still get a Mortgage?

What people often forget when talking about mortgages is that a mortgage is essentially a large scale loan. Like other types of lenders, mortgage providers are going to want to see proof of income, as well as good past financial habits before agreeing to lending you any money. This will help them to determine whether you are likely to pay back the sum of money that you owe them, plus the interest that they make a profit from.

Being approved on a mortgage when you have bad credit can be pretty tough. This is especially true if you have county court judgements (CCJs), individual voluntary arrangements (IVAs) or bankruptcy visible in your credit history. But contrary to common belief, it is possible to get a mortgage when you have bad credit. Here’s everything you need to know on the subject!

What is Bad Credit?

First, let’s clear up what counts as “bad credit”. Every person has a credit score attributed to them. This is a tool that credit lenders use to determine whether they should approve your application for financial products or not.

Credit scores or credit records are used to determine whether you are likely to be approved on a credit card, a loan, finance plans or (most importantly in the case of this article) a mortgage. Information about your credit use and financial habits are gathered by credit bureaus and filed into a report.

If you have bad credit, your report is poor and you are unlikely to be approved on applications for financial products or services like those listed above. There are a number of reasons that you could find yourself with bad credit.

First and foremost, you will have a bad credit score if you have no credit history. Now, this may sound odd at first. After all, you must be relatively financially responsible if you’ve never had to borrow money. But at the same time, lenders have no proof of how you will act if you were to borrow money. They want to see proof of timely repayments and debts being cleared as and when has been agreed. So, no credit history is equal to a poor credit history.

Then there are low credit scores that are the result of irresponsible financial habits. If you miss payments or make late payments for any financial agreement, your score will be negatively impacted. This could be credit card payments, loan payments, finance plan payments or a mortgage, for example. If you have any CCJs attached to your name for not paying bills on time, your credit score will go down. If you have any IVAs, bankruptcy or other debt management schemes on your file, your score will go down even further. Repossessions are also noted on your credit file and can make mortgage brokers reluctant to approve any applications.

Will Anyone Lend to Me With Bad Credit?

While it is going to be more difficult to be approved on a mortgage with bad credit, we have briefly highlighted that it is possible. When you apply for any mortgage, a credit check will be carried out. But it’s important to remember that some negative marks will be taken more seriously than others. It’s unlikely that your mortgage application will be rejected because you made one late payment on a bill years ago. However, something like bankruptcy may make the process more difficult for you.

Generally speaking, you will be able to find a mortgage. You will just have less choice available. You may also have to settle for higher interest rates than someone with a good credit score.

Bear in mind that building societies can often be more flexible and that there are specialist mortgage providers out there for people with bad credit too!

How Can I Improve My Credit Score?

Ideally, you will have a good credit score in order to be able to secure the best mortgage possible. There are a number of steps you can take to improve your credit score. Here are a few that you might like to consider.

• Have patience – credit scores improve with time and proof of good financial habits. So, make sure to pay everything on time, stick to your financial agreements and allow your score to repair itself.
• Keep your balances low – if you have a credit limit, try to keep your balance below half of the available amount. If you have a credit card that has a limit of £1000, try to never exceed using £500 on that card.
• Register to vote – it’s difficult to get credit if you’re not on the electoral register. When you register to vote, your credit score will go up.

Is the Process Any Different for First Time Buyers?

A first time bad credit mortgage is pretty similar to a standard mortgage. The only real difference is that you are likely to have less choice when it comes to lenders and that the interest rates attached to the mortgage are likely to be higher. Often, you will also have to provide a larger deposit. While standard mortgages will usually ask for a 5% to 10% deposit, bad credit mortgages may ask for anything between 20% and 25%. This is because lenders will see you as higher risk than someone with a good credit rating.

Is the Process Any Different If I Remortgage?

It is possible to remortgage with bad credit. However, it’s generally recommended that you have patience and attempt to improve your credit score before applying to remortgage your property. Make your monthly mortgage payments on time and see your score improve. This will let your lender see that you are now a responsible borrower.Then apply to remortgage, as this will give you the best rates possible.

While we are constantly told that you need good credit for a mortgage, there are mortgages available on the market for those with bad credit or a poor credit history. Hopefully, some of the information can help you along the way if you are considering a bad credit mortgage!