Getting a mortgage when you have a history of bad credit isn’t easy, but it is possible with the right advice and information. Read on to find out how you can overcome your poor credit score and still get a mortgage, allowing you to get onto or move up the property ladder.
What is bad credit?
Bad credit means you have a poor credit record which usually arises when you make late payments or miss payments on utility bills or loan repayments. Frequently applying for credit as well as never applying for credit works against you, as does having to face legal action due to unmanaged debt.
Types of bad credit
The following are common ways that people acquire bad credit.
- Paying late
Consistently being late on your credit card/utility bills payments will damage your credit score.
- Not paying/defaulting on a loan
Ignoring your credit cards bills is worse than paying late and could lead to your account being registered with defaults.
- An account is marked with a default
If you’ve been missing payments over the course of three to six months a default could be added to your file regardless of how much money you owe. It depends on your lender’s exact terms.
- An account is sent to debt collectors
Creditors often use third-party debt collectors to try to collect payment from you and this looks very bad on your credit status.
- Filing for bankruptcy
Bankruptcy is an extreme measure. It is very damaging to your credit score and stays on your record for up to seven years.
- Getting a County Court Judgment (CCJ)
If you avoid paying bills, the court gets involved to force you to pay. If you handle these correctly they don’t need to have a big impact on your chances.
- High credit card balances
Having a high credit card balance compared with your credit limit reflects badly.
- Over the limit credit cards
If your credit cards are maxed out and you regularly go over the limit, this is one of the most damaging things for your credit score.
- Short credit history
It is better to have a long credit history so try to keep old credit card accounts open.
- Applying for multiple credit cards and loans
Keep applications to a minimum and don’t apply for several in a short amount of time.
- Having only one type of credit source
Rather have a mix of loans and credit cards than just one on its own.-
What is a Bad Credit Mortgage?
Bad Credit Mortgages help those with poor credit to get mortgages. They can also be known as adverse credit mortgages or sub-prime mortgages.
How do they work?
Can I get a Mortgage with Bad Credit?
Although your options are limited, it is possible to get a mortgage with a bad credit history, depending on the amount of money involved and how much time has passed since you acquired bad credit. Some causes of bad credit are deemed more severe than others.
Make sure to take advice from the experts as shopping around yourself can lead to huge amounts of wasted time and possibly even more damage to your credit file if you suffer needless rejections.
Pros and cons of bad credit mortgages
Pros
An opportunity to get on the property ladder
Bad credit mortgages provide an opportunity for people with a poor credit score to purchase or remortgage a property.
You can change to a better mortgage deal later
Most lenders offer short term fixed rates which means you can repair your credit and then have a good chance of obtaining a mortgage on more favourable terms 2-3 years later.
Faster access to a mortgage
A bad credit mortgage is advantageous for borrowers who want to get on the property ladder as soon as possible. It is a faster route to homeownership than waiting to improve your credit score before applying for a normal mortgage.
Plenty of options
There are a range of bad credit mortgages deals available in the UK to help borrowers get the best deal possible.
Cons
Higher rates
Interest rates are likely to be higher for borrowers with a poor credit score.
Bigger deposit
Due to the risk, you are likely to have to put down a higher deposit than with a normal mortgage.
Larger fees
Most lenders will charge higher fees for a bad credit mortgage. This is another reason for taking advice.
How to improve your chances of getting a mortgage with bad credit?
If you have a poor credit history, there are a number of things you can do to improve your position to get approved for a mortgage.
- Pay back your debt
Make an effort to pay back your debt before you try to get a mortgage.
- Check what else could be affecting your credit rating
There could be old phone contracts or shared bank accounts that are negatively impacting your credit rating. Be sure to handlethem correctly.
- Wait a while
Over time, black marks on your record become less serious, particularly if your financial position has since improved. Waiting for your credit score to improve can mean you are offered much more favourable interest rates.
- Create a good credit history
Make the effort to establish a pattern of consistent payments going forward.
- Be honest with lenders
Trying to hide bad credit will have an adverse effect. Lenders carry out extensive searches that will pick up your credit history and it is almost impossible to hide it. Instead, have an honest explanation ready detailing why you got into financial trouble in the first place and what has since happened to improve the situation.
- Present yourself as a lower risk
Offer a high deposit (at least 20% of the property’s value). and apply when your income is at its highest.
- Seek help from a family member
If lenders are unwilling to lend to you, consider asking a close family member to act as a guarantor.
- Speak with an advisor
If you are unsure where to start looking for a mortgage with poor credit score, seek advice from an advisor who can guide you and offer advice based on your specific situation.
Remortgaging with bad credit
It is possible to remortgage with bad credit but, if your existing interest rate or ‘standard variable rate’ is not too uncompetitive. it is worthwhile not rushing into it and instead taking the time to improve your credit score to try to get a better interest rate and overall deal from your lender. Find out more about remortgaging in general here.
Checking your credit score
In the UK, your credit history and any information relating to it is collated by Credit Reference Agencies (CRAs). There are three main UK CRAs and you can carry out a check with each of them for free.
We have partnered with UKCreditRatings – Affiliate who take data from the major credit reference agencies to produce you a free credit report!
You will receive a statutory report that contains your personal details, information about financial links to other people, whether you’re on the electoral roll, your credit accounts, details of missed payments or defaults and a list of other recent searches of your credit report.
Bad credit mortgage FAQs
Can mortgage advisors help arrange a mortgage for bad credit customers?
Yes, in fact it is highly recommended that you seek advice because mortgage advisors will know which lenders are most likely to offer bad credit mortgages and will have access to the best deals.
Will a bad credit mortgage cost me more?
You will likely have to pay a higher interest rate for your mortgage if you have a bad credit score.
Can I get a mortgage if I have an existing default/or after defaulting?
It depends on the lender. Get help from your mortgage advisor to find out which lenders will offer a mortgage when you have a default.
Can I use the Help to Buy scheme if I have bad credit?
The Help to Buy scheme usually excludes ‘credit impaired customers’. Whether this applies to you depends on the type and severity of your bad credit. Very light adverse credit history can be considered.
Can I get guaranteed mortgage approval if I have bad credit?
Guaranteed bad credit mortgages or pre-approved bad credit mortgages are not offered by lenders in the UK. But you can get a firm understanding by speaking with an advisor and possibly creating an ‘agreement in principle’ with a lender. Adverse credit mortgages are manually underwritten which means the underwriter will want a full understanding of how you accumulated bad credit and be comfortable it will not happen again. So although an initial agreement can be obtained but does not guarantee full acceptance.
Are there any UK lenders that don't use credit scores?
Yes, not all lenders will use your current credit score but they will still perform a credit check and take your financial history into account.
Can I get a bad credit mortgage with no deposit?
No, it is not possible to get a bad credit mortgage with a 100% mortgage.
