Your guide to getting a mortgage when you have poor credit

How to get a bad credit mortgage in five steps

There aren’t many people whose credit score runs on full throughout their life. When you have a poor credit score, getting a mortgage is a little more difficult – but it doesn’t have to be impossible. In this article you’ll learn:

  • Why you have a poor credit score
  • How poor credit mortgages work
  • Five steps to getting a mortgage with bad credit
  • What credit problems will a poor credit lender accept?

What is poor credit?

A 2015 survey by uSwitch found that almost one third of people in the UK have been turned down for credit because of poor credit scores. More than half of those aged between 18 and 34 have been turned down for the same reason. Two-thirds of these have been turned down more than once.

Making multiple applications when you have bad credit is a poor strategy. Every rejected application does a little more damage to your credit score.

The most common reason for a poor credit score is that you’ve had some financial problems in the past. These might include:

  • You’ve paid bills late, or not paid them at all
  • You’ve had a County Court Judgement (CCJ) against you
  • You’ve previously had a home or other item (e.g. car) repossessed
  • You’ve been declared bankrupt before

Another reason that many don’t consider is a lack of history of borrowing. If you have never had credit before, a lender can’t assess you for reliability!

Poor Credit Tip:

If you have ever missed payment dates, had anything repossessed, had a CCJ, been declared bankrupt, or never borrowed before (or it’s been a long time since you did), approach the mortgage market as if you have poor credit!

How do poor credit mortgages work?

There is little difference between how a poor credit mortgage and an ordinary mortgage works. The lender will still want to see evidence of your income and outgoings, and be assured of the value of the home you are buying.

In fact, the only real differences of a bad credit mortgage are that the lender will probably:

  • Require a larger deposit
  • Charge a higher interest rate

Once your mortgage is accepted and in place, you pay monthly repayments, with the same warning given to all mortgage payers: your home may be at risk if you don’t keep up the mortgage payments.

5 steps to getting a mortgage with bad credit

Step 1: Get your credit files

There are several services that provide credit scores, and not all lenders use the same ones. This may pose a problem for you.

The main credit reference agencies are Experian, Equifax, and Callcredit. If the lender you apply to uses Experian, and you have your credit report from Equifax, the two credit reports may not be the same! One may show that you have good credit, the other that your credit rating is poor. It is therefore crucial that you get credit scores from all three credit reference agencies.

Ordering your credit scores is a bit of a bind, but it must be done. If you don’t know your credit rating, you won’t know how lenders are likely to treat your application.

Step 2: Always use a mortgage broker

Mortgage brokers know the mortgage market. They know which lenders are most likely to accept applicants with different financial circumstances, and which mortgage products offer the best interest rates and terms and conditions for your situation.

If you’ve discovered that you have a poor credit score, then you should use a mortgage broker who is a specialist in the bad credit mortgage market. They will have access to a wider choice of mortgage providers that offer mortgages to applicants that many of the main lenders will reject routinely.

Step 3: Get your deposit together

Poor credit mortgage providers tend to want a higher deposit as extra security against default. Instead of a 5% deposit, you may need to put down, say, 15%. Your mortgage broker will be able to advise you on this. Wherever you get the deposit (from savings, friends and family, an inheritance, etc.), be prepared to pay more than those with good credit histories.

Step 4: Work on repairing your credit score

Consider how to improve your credit score, such as obtaining a credit card and spending on it and repaying your balance in full each month. This is one of the easiest ways to help repair your credit score, though you will have to be disciplined and not leave any balance outstanding on the card.

Step 5: Make sure you can afford the mortgage repayments

Finally, make sure that you can afford the repayments on the mortgage. Your mortgage broker should help you to work through your income and expenses, and give you peace of mind that the mortgage offer you may receive will help you buy a new home and remain affordable for you.

Poor Credit Tip:

Don’t make multiple applications. It will further damage your credit score.

What credit problems will a poor credit lender accept?

Getting a mortgage when you have a poor credit score is more difficult but doesn’t need to be impossible.  The types of credit blips we have helped with include:

  • CCJs
  • Late payment problems
  • IVAs and bankruptcies
  • Repossessions
  • Credit defaults
  • Debt Management Plans

If you have a poor credit score, contact Mortgage Thoughts today. You may be surprised by the mortgage possibilities available to you.

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