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Getting a mortgage when you’ve got a bad credit rating

Multiple credit cards being held out by a hand

PIL Southampton is one of the leading mortgage brokers in the Southampton area. One of the questions we are most often asked is, “Can I get a mortgage if I’ve got a bad credit history?”.

It is a sensible question because we all know how much the bar has been raised with mortgage lending criteria in recent years. 

We would be lying if we said that having a poor credit rating makes no difference to your mortgage application, but don’t lose heart.

There are mortgage lenders who will approve mortgage applications for people who don’t have the best credit ratings.

Let’s look into this area, with this helpful Q&A.

What does ‘poor credit’ or ‘bad credit’ actually mean?

Someone who has a history of not paying their bills on time or who owes quite a lot of money is generally considered to have ‘bad credit’, which is often reflected in having a low ‘credit score’. 

Other factors that can cause a lower credit score are making lots of applications for credit over a short period, or having county court judgements (CCJs) against your name.

A credit score is defined by a credit report compiled by a credit reference agency, and the three main credit reference agencies in the UK are Experian, Equifax and TransUnion.

There is no magic number that makes a ‘good’ credit rating, and each of the credit agencies uses a different range of numbers.

It is worth noting that, although you see your credit score as a number when you are checking your own credit score, a mortgage lender won’t see a number against your name. They will receive a credit report, detailing key financial information about your credit history.

Your potential mortgage lender will use this snapshot of your financial history as a guideline to help them work out if you meet their lending criteria. 

However, this isn’t the only information they use so a good credit rating won’t automatically mean that your application will be approved. It will be part of a wider picture they will be building up, alongside your income, expenditure and so on.

As you would expect, the higher your credit score, the more favourably a mortgage lender could look on your application. It reassures them that you have handled credit responsibly in the past, with them having no reason to think your future credit behaviour would be any different.

Conversely, the lower your credit score, the less attractive you may look to mortgage lenders and it could make them wary of lending you money in case you are an unreliable borrower. 

How do I find out what my credit score is?

You can do an internet search on Experian, Equifax and/or TransUnion and follow their straightforward online process to find out your credit score for free.

If your score isn’t very high, you might find it helpful to get a more in-depth analysis on your credit score.

One way to get this would be to sign up to Checkmyfile for a 30-day free trial period, using this link.

Do make sure you cancel before the 30-day free trial ends, if you would like to avoid paying the ongoing subscription of £14.99 per month. 

Note: Protection & Investment Ltd may receive a commission from checkmyfile when you register for their service, whether you cancel during the free trial period or not. 

Although there are other credit reference agencies available, in our experience checkmyfile is really useful as it includes the four credit reference agencies that lenders use. This saves you having to register with all four (the three we’ve already mentioned, plus Crediva), individually.

Can I get a mortgage with a poor credit rating? 

Absolutely. There is no reason why you shouldn’t be able to get a mortgage, even if you have a poor credit rating.

It will come at a price, though. Because you will be viewed as a higher risk to the lender, people with a poor credit rating are likely to have to pay a higher interest rate and provide a larger deposit.

There are mortgages specifically designed for people with lower credit ratings. These are referred to as bad credit mortgages, adverse credit mortgages and sub-prime mortgages.

How does a ‘bad credit’ mortgage work? 

They work in exactly the same way as any other mortgage, and you will still be able to get a fixed rate or variable interest rate mortgage.

You will, however, have a smaller pool of mortgages to choose from and you are likely to be asked for a larger deposit and offered a higher interest rate.

Because mortgages for people with bad credit are harder to come by, we would recommend that you use an experienced mortgage broker to help find the best option for you.

The application process for a bad credit mortgage can be more complex than it is for a regular mortgage, as the lender will want even more assurances that you can afford the mortgage and will reliably make your mortgage payments.

It could be useful to provide a detailed summary of your financial history, explaining what happened in your past to cause your low credit score. Honesty can be a powerful asset in this situation.

Can I remortgage when I’ve got a poor credit rating?

Yes, definitely. The remortgage process for someone with bad credit is just the same as it is for anyone else, it’s just that it won’t be as straightforward. But don’t be put off. 

An experienced mortgage broker like our team of specialists at PIL Southampton, will do our best to find the right deal to suit you and make it as painless as possible!

How can I improve my credit score?

One really quick win is to make sure you are on the electoral register. This can add a lot of points to your credit rating because lenders use it to confirm your identity and check that you live where you say you live. It also shows that you are stable and reliable.

If you can, avoid moving home or job just before you apply for a mortgage, to show stability.

Sometimes, it’s a waiting game. For example, the older a late or missed payment marker is, the less impact it will have on lenders, and they get totally wiped from your record after six years. So, if you have any incidents in your past that could count against you, the longer you can wait before you apply for a mortgage the better your credit score might be.

In general, it’s good practice to keep an eye on your credit report and score. Check for any errors on your credit report and, if you spot any discrepancies, ask the credit reference agency to correct them.

If you are looking to apply for a mortgage soon, make sure you pay all your bills on time and avoid taking out payday loans, large credit agreements or making late payments for (or defaulting on) your credit cards and car loan.

Keep below 25% of the available limit on your credit cards, to prove you are not too reliant on debt, and try to avoid using your overdraft for the same reason.

Finally, make sure you have officially severed outdated ties to other people. For example, if you are no longer with a partner that you used to share a joint bank account or loan with, you must get a ‘notice of disassociation’ added to your file – otherwise, if they have a poor credit score it could drag yours down too.

How PIL Southampton can help you 

Our team has decades of combined experience in navigating our way around the mortgage market. 

We have extensive knowledge and a huge amount of experience that we bring to the table when we are finding the best type of mortgage, and the best deal available, to suit your particular circumstances. 

How you can contact PIL Southampton

Our friendly, knowledgeable mortgage advisers are here to guide you through the mortgage process, every step of the way. You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.