If you have a poor credit history, finding a mortgage can be difficult and disheartening. But don’t give up yet; even with bad credit, you could still have options available to find a mortgage that works for you.
How does a credit score work?
A credit score is a number generated through an assessment of your borrowing history. If you have had loans, or credit cards, or any line of finance, a record of it will appear on your credit report, detailing if you have paid on time every month or repaid the lending successfully, or if you have missed payments or stopped paying. Essentially your credit score will tell a lender how likely you are to repay a financial commitment based on how you have behaved with borrowing in the past.
The three main credit reference agencies are Equifax, Experian and Call Credit. If you want to understand what potential lenders are looking at when they are assessing whether or not the will lend money to you, get hold of your credit report from these three main agencies. Visit their websites for more details on how to do this.
What will damage my credit rating?
Your credit score will be damaged if you do not make payments on time, or if you violate the terms of the lending agreement. Paying your credit card bill late, missing payments on your rent, or not paying your loan will affect your credit rating. Doing this persistently will lead to defaults and, eventually, CCJs. If you default on payments and eventually catch up, it can take six to twelve months before your credit rating starts to improve. CCJs can appear on your credit report for up to six years after all debts have ben satisfied, and IVAs (Individual Voluntary Arrangement, where you form an arrangement with an insolvency practitioner if you are struggling to pay your debts) can be on there for up to seven years after all debts are repaid.
How do I find a mortgage with bad credit?
Find a professional who can give you advice. A mortgage broker who understands your circumstances and can guide you through the application process, as well as knowing which lenders will consider you based on your credit issues, will undoubtedly make the process much smoother and help you find a suitable mortgage. Some mortgages that are geared towards borrowers with adverse credit are only accessible through a broker.
If you are looking without the help of a broker, you may find you are applying and being rejected at the initial credit scoring; running multiple credit searches that are unsuccessful can further damage your credit score. It is under rare circumstances that high street banks and lenders will approve an application from someone with adverse credit; if you have a poor credit score, seek advice before taking any further action.
Will it cost more?
Ultimately, lenders will charge higher rates and fees because it is viewed as higher risk to lend to someone with an adverse credit history.
While you should expect to pay higher rates and fees for a mortgage that is available to you with adverse credit, it doesn’t necessarily mean they are not still reasonably competitive. Work with your advisor to find the right deal for your circumstances.
If you have questions about finding a mortgage if you have a poor credit score or a history of adverse credit, you can contact Dee on firstname.lastname@example.org