Getting a mortgage with bad credit

Having bad credit does not mean getting a mortgage is out of the question. Learn how to get a mortgage or remortgage with bad credit.

Your home could be repossessed if you don't keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage.

Can you get a mortgage with bad credit?

Lenders run credit checks to see how likely the borrower would be to pay their mortgage payments.

If your mortgage application shows a poor credit history, some lenders:

  • will not accept your application

  • will ask you to provide a larger deposit

  • might only lend to you at higher interest rates

The extent your credit rating affects your application depends on:

  • the type of credit issue on your credit report

  • the amount involved

  • when the credit issue happened

Some issues have more impact than others. Lenders may not view a late mobile phone payment or a missed utility bill payment too seriously. But a missed mortgage payment or bankruptcy stays on your credit report for 6 years.

You may find more lenders if you use a broker.

Specialist lenders are more likely to accept and offer you a more flexible deal. Especially if you’ve faced illness, divorce, or other personal situations.

How to get a mortgage with bad credit

Getting a mortgage with bad credit can be tricky. So, it's useful to check your credit report so you can fix any issues before you apply.

If you build a stronger credit history, you improve your chance of getting a better mortgage deal.

You can check your credit report for free using a credit agency, such as Experian and Equifax.

A credit agency may ask you to sign up for a free 30-day trial to access your report. Remember to cancel it within the time period if you do not want to subscribe to their monthly paid plan.

Talking about your finances can be uncomfortable. Particularly if you’re applying for a mortgage with a partner for the first time.

It's important to know and be honest about any issues straightaway to avoid surprises later on.

It’s particularly important to be upfront with your mortgage broker. This way they'll have a better chance of finding you the most suitable lender. This will also help them to give you the best advice for your situation.

How to check your credit rating?

The main credit reference agencies let you check your score for free online.

It does not take long to find out what your score is. They’ll also give you a report that shows any issues such as records of missed payments.

If you think any details are wrong or are the result of fraud, you can tell the credit agency.

You'll need to give them extra information so they can look into it for you. If confirmed, they could remove the detail from your record.

This process can take from days to months, so it's best to check your report as soon as possible.

How to improve your credit score

There are things you can do to improve your rating if you're finding it hard to get a mortgage due to a poor credit score.

The lender will usually check your credit score when you apply for a loan.

Lots of credit checks over a short period can have a negative impact on your credit score.

Make sure you wait before you apply for credit again, and start to improve your credit score first.

Check your credit score with major credit reference agencies Equifax, Experian, or Callcredit.

Asking for your own credit report does not impact your rating.

You can get a hard copy of your credit report for a small fee, often under £2. You may be able to get one online for free.

As well as your credit score, your credit report should show you what is having an impact on your score. They may offer some tips for improving it.

If you think you’ve spotted a mistake on your credit report, let the rating agency know. They can investigate and change your record if they agree it's incorrect.

It can be hard to pay off debts, but try to pay down your debt as much as possible.

It’s always a good idea to have some savings in case an unexpected cost comes up. Using your savings to pay off debt may be a good move.

You can avoid missing future payments by setting up direct debits.

Being registered to vote at your current address can help your credit score. It’s also used by lenders to confirm your name and address.

You can register to vote online.

If you’re not eligible to vote you can send proof of address documents to the credit rating agencies.

Having lots of open accounts, such as several credit cards, can have a negative impact on your score. This makes it look like you have lots of credit available.

Be careful as closing some accounts means maxing out your remaining credit. This could also have a negative impact.

Review your situation carefully and decide if it makes sense to close some accounts that you do not use.

If you do this, remember that you need to contact the lenders to close the accounts. Do not just cut up your cards.

Lenders look at your credit rating to make sure you have a history of managing debt responsibly. This means they may turn you down if you do not have much of a credit history.

Using small amounts of credit like a planned overdraft or a credit card can help to build your credit rating. It'll also improve your chances of being accepted for bigger loans in the future.

It’s important to manage this debt and make your repayments on time. If you do not, you could end up paying high interest rates and doing more damage to your credit rating.

If you’re struggling to get accepted for a credit card, you could try applying for a special ‘credit builder’ card. You'd still need to pay in full each month as the interest rates for these cards are often very high.

Try to use the same phone numbers and job titles on credit applications. Using different information could cause you to fail fraud checks.

Moving house often or changing banks a lot can also impact your credit score.

Serious financial issues like county court judgment (CJJs) and loan defaults will stay on your report for six years.

If you’re near the end of that period, it might be best to wait before you apply for a mortgage.

If you had a good reason for defaulting on a loan you can ask the credit agency to add a note to your file. For example, if you were seriously ill or lost your job.

Thousands of deals

Bad credit mortgage lenders

Specialist lenders like Pepper Home Loans or Precise Mortgages currently offer mortgages for people with poor credit.

Some mortgage brokers also focus on getting mortgages for bad credit applicants.

You do not always need to go to a specialist lender to get a mortgage if you have bad credit. Many high street banks and building societies may help, depending on what the bad credit is from.

How much can I borrow if I have bad credit?

Lenders do affordability assessments. These check income and outgoings to assess your ability to meet your monthly payments. As well as what future changes to interest rate rises might have on your ability to repay.

A lender bases the amount they'll lend someone with bad credit on the same things as a standard mortgage.

This is based on your individual or joint income time times multiplied by an agreed number.

This number varies between lenders and is often up to 4.5. They'll also consider any debts or commitments you hold.

Should you use a broker like Trussle?

A mortgage broker understands the market and the criteria to meet to get a mortgage with a poor credit score.

As a mortgage applicant, you should think about using a mortgage broker if you’re finding it hard to get a mortgage.

Brokers have wider access to lenders and deals than if you went straight to a lender. With more options, you're more likely to find a deal that suits you.

Online mortgage brokers such as Trussle can manage your entire application online. This saves you from lots of paperwork and having to take time out to visit an office.

We search for mortgages from lots of lenders. This means we can often find mortgages for people who lenders have rejected in the past.

At the moment, we can generally help you if in the past 6 years you have not:

  • had any late payments, defaults, or county court judgements (CCJs) on your mortgage

  • had your home repossessed

  • had an Individual Voluntary Agreement (IVA) or Debt Management Plan. Unless it was discharged more than three years ago, and you have a mortgage deposit of at least 20%

  • declared bankruptcy. Unless the bankruptcy was discharged more than three years ago, and you have a mortgage deposit of at least 20%

We can also help people who in the last 3 years have not had any defaults or CCJs on an unsecured loan. Unless they’re less than £500 and have been settled, and you have a mortgage deposit of at least 15%.

If you use Trussle to apply for a mortgage, we'll only check your credit score once we've submitted your application to the lender.

We’ll only submit your application if we think it has a good chance of the lender accepting it. We'll also always ask you before we check your credit score.

Adverse credit fees may apply when you submit a mortgage application with us. This will depend on your circumstances and credit history.

Like many other brokers, at Trussle, we ask adverse customers to pay a fee when they get a mortgage through us.

This is because it requires more work to obtain a mortgage when you have poor credit. Our advisers will need to put in extra time and effort to find you the right deal, but it's worth it when they do.

Speak to an advisor to find out if this applies to you.

Sources

Accurate as of 8th May 2019

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Your home could be repossessed if you don't keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

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