Mortgage with Bad Credit
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Mortgages with Bad Credit
We explore mortgages with bad credit with Kirsty and Rupert from JXP.
What is bad credit and how do I know if I have it?
Bad credit is anything that’s seen negatively on your credit profile. It could be missed or late payments on a loan, credit card, utility bill or mobile phone contract – anything like that.
It might be that you’ve reached a certain number of late payments and the lender registers a default against you. Another one that we commonly see is County Court Judgment (CCJ).
Bad credit is basically anything that will show in your credit file, where you haven’t been able to repay a debt or keep up to date with the payments. It will affect your credit rating, which could potentially impact mortgage applications.
There are ways that you can check if you’ve got bad credit. You can do a credit search on different platforms including Equifax, Experian, TransUnion and Checkmyfile – with most of these you can sign up for 30 days at no cost. Have a look at that before you apply for any credit, to make sure there’s nothing there you’re not aware of.
Can I get a mortgage with bad credit?
The answer is actually more positive than most people think. You can get a mortgage with bad credit. It’s going to depend on the severity of the issue, but a lot of people misunderstand what bad credit is.
Some people think they have bad credit if they’re in an overdraft or if they’ve got a balance on a credit card. But that can actually be quite a positive thing.
It depends on the debt you’ve got, when it was, how much it was for and who it was with. The best thing to do is to talk to someone like ourselves. As an independent mortgage advisor we can look at lenders that might consider people with certain things on their credit file. Speak to us first, because it might not be as bad as you think.
What might be perceived by one lender as bad credit might not be an issue for another one. It’s not one-size-fits-all. It might mean you need to consider how much deposit you’re putting down. While you may not be able to get a mortgage with a 10% deposit, for example, the same lender might accept you with a 15% deposit.
We look at those options with all the high street lenders and main mortgage providers. If not, we’d maybe go to a lesser known company that specialises in that particular area of bad credit.
Can you get a mortgage with a 500 credit score?
Yes. In the mortgage industry, credit score can mean different things. A credit agency might say your credit score is unknown. It might say 500 out of 1000 or 700 out of 1000. But actually, the lenders have their own internal credit scoring systems.
Different things can help you move higher up a lender’s scale. They set their own parameters – and the level of risk they will accept can also vary from month to month.
With some lenders, if you’re not on the electoral roll to vote, you might still be declined even with a credit score of 1000. There’s lots of different factors that influence an application.
Some of the more specialist lenders aren’t even worried about the numbers. They want to look at the details on your file. If for example, you’ve had a blip in the past, a Covid-related issue or a one-off life event – they might look to ignore those if everything before and after is positive.
If you apply for credit, your credit score might drop down that month. But then the next month it will bump back up again. Many things can impact it, so don’t get too bogged down with your credit score. Lenders aren’t necessarily looking for a perfect rating.
What are the main types of bad credit and how do they affect a mortgage application?
There are four main types of bad credit: the CCJ, a default, an individual voluntary agreement (IVA) and a debt management plan (DMP). Those last two are similar in the way they’re set up.
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Can a CCJ stop me from getting a mortgage?
A County Court Judgment can vary dramatically from one type to another. We often see them given out after an unpaid car parking fine. It might be that the penalty notice never arrived at your home. A small fine can turn into a much larger one. CCJs are often quite easy to overcome because lenders understand that they are given out freely.
Another common one is a mobile phone CCJ, which again could be a very small balance that escalates. Some lenders again have a more sympathetic view on that.
Typically with a CCJ, the smaller the amount and the longer ago it was, the easier it is to overcome. If you had a CCJ of £200 from five years ago we could place that mortgage application without too much trouble. But an £8,000 CCJ from two years ago that you haven’t paid off will be much harder.
Will a default affect my mortgage application?
Defaults tend to come from credit card companies or loan companies where you’ve missed or been late with payments. Again, it could be for a small amount. It could be from a long time ago. It could be from a previous address.
They’re more common than CCJs, and again it is important to know how many you’ve got, when they were and for how many months. One late payment will cause less impact than six late payments in a row, or if you were six months behind with a payment.
Will an IVA or DMP prevent me from getting a mortgage?
Individual voluntary agreements and debt management plans are more serious. Both are where you enter into a special contract to repay your debt at a lower rate.
Unfortunately, at the moment a lot of companies are encouraging you to do this, and it seems an easy way out. I would encourage people to try and avoid them if they can. While it might seem like a good option, a DMP or IVA will make it much tougher to get a mortgage through.
Again, it can be done. More specialist lenders would look at when that debt management plan was set up and whether you are up to date with the payments on it. They will want to know how many payments you have made, the size of the debt and when it is likely to be repaid.
The information will all be on your credit file, and depending on the details we might be able to get you the mortgage.
How can I improve my credit score?
There are lots of different things you can do. As we’ve already mentioned, make sure you’re registered to vote. Make sure it’s correct – often when people move home they don’t realise until the following year when the voting cards come through that they’ve not registered at the new address.
Payday loans really affect your credit profile and can make it very tricky to get a mortgage. Believe it or not, a landline phone number helps – a lot of people don’t have these any more, but that can help your credit profile.
Actually having credit also helps. First Time Buyers often think that as they have no credit, their score will be really good. But in fact, not having credit can go against you because you’ve got no track record. Taking out a credit card and putting a little bit of money on it and paying it off each month can really help increase your credit score from the lender’s point of view.
Lenders don’t like to see too much debt compared to your income. Try and keep your total outstanding debt at under 50% or less. Say you have £100 outstanding on a credit card with a £150 limit, or £10,000 outstanding on a credit card with a £30,000 limit. In actual fact that £100 balance is going to be more negative, because you’re utilising a higher proportion of your allowance.
Something else I’ve seen lately is multiple searches on credit profiles that come in from comparison websites. When you get to a certain point with the comparison, these can register credit searches for each result that comes through. It can look like you’ve applied for lots of different credit – which lenders don’t like.
Speak to us for specific advice based on your credit report to help maintain and manage it.
Is there any difference for First Time Buyers with bad credit or remortgaging with bad credit?
For a First Time Buyer, the main negative is that for reasons out of their control they may not have as much of a credit profile as someone who’s more established.
But they shouldn’t be put off. It’s not that they will be treated any differently. They just need to perhaps be a bit more proactive in their approach to taking out credit in the first place.
How can a mortgage broker help somebody looking to get a mortgage with bad credit?
A mortgage broker is going to make it so much easier for you. A lot of people will go to their bank, get declined and think that’s that – they can’t get a mortgage. But different lenders have different criteria.
You might go to one bank and not be accepted, but other high street banks will take you. We know which banks to approach with specific credit issues. We also have access to lots of specialist lenders or middle ground lenders that will consider your application. So don’t give up after one rejection – most of the time there are options out there.
We’ ll work out which lender you’re going to fit best with. There are over 100 other lenders out there and many are specialists who see this type of situation every day. Plus, you won’t be stuck with these specialist mortgages indefinitely. They are a stepping stone to rebuilding your credit profile. Bad credit drops off your record after six years, at which point you might be able to access the high street.
So speak to a whole-of-market broker like ourselves. We’ll have an initial consultation and give you an idea of your options.
Your home may be repossessed if you do not keep up with your mortgage repayments.