Bad Credit Mortgages

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Bad Credit Mortgages' Frequently Asked Questions

Listen below as Richard Crow talks all about Bad Credit Mortgages

In less than 15 minutes, you’ll know a lot more about getting your first mortgage sorted.

What is bad credit?

A person is considered to have bad credit if they have a history of not paying their bills on time. Alternatively, they might pay their bills on time but they owe too much money.

Bad credit is reflected on a credit report as a low score, which could be under 600 or 500. The crux of the matter is that people with bad credit will find it harder to get a mortgage.

How do I know if I have bad credit?

There are three main credit agencies that lenders use: Experian, Equifax and TransUnion. You can check individually with any of those agencies, but with our clients we prefer to use something called Check My File. This gives us a complete view of all three of those agencies – so we get to see exactly what lenders can see.

It allows us to rectify any potential mistakes and errors on the credit file prior to making an application. It also helps us source an appropriate lender to accept your proposition.

Will anybody lend to me with bad credit?

You can’t just walk into any bank or building society and be accepted for lending. Every lender has specific criteria and rules, and they actually target certain types of client. So if you have bad credit you’re probably going to find it difficult to walk into your high street bank and get lending.

Can you get a mortgage with a 500 credit score?

Yes – I’ve got mortgages for clients with lower scores than that, but we don’t particularly look at the number itself. We actually want to know what makes up that score – what’s going on in the background.

It could be that there were mispayments or defaults one or two or even six years ago. These will all show on the credit file, but how long ago they were will actually determine your chances of getting a mortgage.

Can you get a mortgage with a CCJ?

A CCJ is a County Court Judgement. This is when a creditor has attempted to recover money owed to them and you’ve failed to make that payment. They then take you to the county court and get a judgement against you.

That shows on your credit file and it will potentially put lenders off. If you have got CCJs, we always recommend that they are paid off as soon as you know about them. A paid off CCJ is always far better than one that’s still outstanding.

Sometimes people are unaware that they have CCJs. In that case, you would contact the relevant county court, give them the reference number that shows on your credit file and they will then give you all the information about it. You can then contact the creditor and get it paid off.

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What is a default and how does it affect my mortgage chances?

A default is when you have failed to pay a creditor your monthly repayment. This would tend to come onto your credit file after six missed payments. So the creditor hasn’t gone as far as getting a county court judgement on you, but equally a default will damage your credit file.

Again, the longer ago the defaults are, the better – which is the same as with a CCJ. If they were two months ago you’re probably really going to struggle to get a mortgage, but if they are a few years old you’ll have better chances.

What’s an IVA and what will this mean for a mortgage?

An IVA makes a mortgage tricky to get. It’s an Individual Voluntary Arrangement, where you have made an arrangement with your creditors to repay a percentage of what you owe over a long period. That will normally stay in place for five or six years.

There are a few lenders that will do a mortgage for someone with an IVA, but interest rates are very high and they also want quite a large deposit.

What are the most common causes of bad credit?

Mobile phone contracts and parking tickets are very often the causes of people’s credit problems. I’ve had a client in the past who got a penalty parking ticket. He ignored it and all the letters that we sent. He ended up with an £800 CCJ.

We were able to get him a mortgage, which was great, but it really affected his monthly mortgage payments. He certainly wished that he had just paid for the original parking ticket.

With mobile phones we often find people have got very small defaults, but they still make a difference. Another one of my clients had just a £5 default when they closed their account down but something was missed.

Another common issue is where you move house and end your water bill, phone bill, electric bill, and there’s a few pounds not included. The supplier tries to contact you but you’ve moved house. I’ve seen quite a lot of defaults for just £4 or £5 which can really slow down our process.

This is a huge benefit of seeing your credit file prior to an application – it means we can help you get these blips removed. For small amounts like that, creditors are pretty good. They understand the scenario, you pay the difference and they remove it from the credit file. So I always recommend to my clients to log onto your credit file once or twice a year and make sure that everything is as it should be.

How can I improve my credit score?

One of the first things you should always do is register yourself on the electoral roll. That way lenders can find you a lot easier. If you’ve had a previous relationship where your ex-partner potentially has bad credit, even if your joint or linked accounts are closed now, you can still potentially be affected by their credit. You can disassociate through Check My File.

You should also carefully manage your available credit. Always try to keep your credit cards between 25% and 50% of the available balance. If you’ve got a £5,000 credit card limit, aim to stay under £2,500. That just shows that you’re not relying too heavily on credit.

You should also close old, inactive credit card accounts. And always make sure you pay all of your bills and your mortgage on time – that is the most important thing that lenders look at. Another tip is not to apply for credit shortly before you’re going for a mortgage, and cut back on spending before you make your move.

Stay out of your overdraft if you can – it should really be there as an emergency. So there are lots of ways to keep on top of your credit score.

Is the process any different for First Time Buyers or a remortgage if you do have bad credit?

The process is pretty much the same in terms of what the lenders want. It’s just a case of making sure that you fit their criteria. Chances are, if you’ve got a mortgage already and then you’ve found yourself in trouble, depending on the reason for remortgaging we may have to go to a less well-known lender.

Where you will struggle is if you try to find a mortgage on your own. It’s pretty much pot luck. The majority of high street lenders won’t take people with really bad credit. So the best move is to come to a broker. Use someone that is used to this process, because you can waste so much time going to lenders that will never take you. We have experience in this. We can assess your situation quickly and tell you if there is a lender that will work.

What other advice do you have on bad credit mortgages?

A lot of the time people think their credit situation is worse than it is. Just get in touch and we can have a free consultation, which is just a chat about your situation. I can assess it and let you know where you are and if there is anything that needs tidying up. I’ll advise you on what to do next to get in a good position to get a mortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.