How to get a mortgage with bad creditIf you have a bad, or poor, credit score and need to apply for a mortgage, the first thing you will need to do is check your credit score so you understand where you are starting from and what lenders will see when they run your credit report. You could find that your score isn’t as bad as you thought, and you are eligible for a standard mortgage. Or you may find errors on your report that need correcting, resulting in an improved credit score without you having to do anything.
Next, you need to create a budget that includes all your income and expenditure. Be honest with yourself here because otherwise you risk thinking that you can afford larger mortgage repayments than you actually can. Include everything you spend money on, down to the coffee you buy yourself on the way to work in the morning. Once you know how much you spend each month, you will have a realistic idea as to what you can afford to spend each month on a mortgage.
Use this figure to start looking at potential mortgages and mortgage lenders. This is a perfect time to give us a call. One of our experienced advisors will go through your finances with you, helping you to work out which mortgages you can apply for and the size of deposit you’ll need. If you aren’t ready to speak to us yet, we have a really useful mortgage calculator on our site that’s free for you to use.
Avoid any hard searches as these could negatively impact your credit score and your chances of getting approved. When you are ready to apply, only apply for mortgages you are likely to get approved for - remember, just because you have bad credit and you’re applying for bad credit mortgages, it doesn’t mean the lender will say yes.
Credit scores - How important are they and how do they work?Your credit score gives lenders an idea as to how well you manage money and the level of risk they are taking if they loan you money. The lower your score, the higher the risk lenders will consider you to be.
Lenders look at your credit score as well as your ability to make repayments before deciding whether to approve any credit application, including credit cards, loans and mortgages. Generally, they use reports from one of the two main credit reference agencies (Experian and Equifax) who calculate your credit score and produce a credit report based on:
- Your current level of debt and available credit; most lenders don’t want to see you using more than 50% of your available credit.
- Your repayment history across any credit agreements you hold, including whether you have made payments on time and if you have paid off at least the minimum amount required.
- Late payments will generally be seen as a negative and will reduce your credit score.
- If you have a bankruptcy, Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO), or Debt Management Plan (DMP) on your credit record, how long it has been on there and whether it has been discharged.
- Whether you have any County Court Judgements (CCJs) against your name and how long ago these were issued.
- The number of credit applications you have made and over what time period.
Not having a credit history can have a negative impact on your credit score in just the same way as late payments. Young people, for example, or those who’ve recently moved to the UK may find they have no score simply because they haven’t had time to build up a good one. Lenders always want to be able to see someone payment history to understand and calculate risk.
Regardless as to the reasons, if you have a bad credit rating, your ability to get any type of credit will be limited and if you’re considering buying a new home, you’ll be best speaking to one of our specialists, who can help even if your bad credit is current.
What is a good credit score?Each credit reference agency calculates your credit rating slightly differently and has a different scoring system. Which means that what counts as a good credit score will depend on which of the three major agencies your lender uses. However, in general, a good credit score is considered to be at least:
- 420 out of 700 for Equifax
- 880 out of 999 for Experian
It's important to note, that some specialist lenders do not credit score, so if your score isn't great, it's not the end of the world. Our mortgage specialists are on hand to help!
You can check your credit score for free through any and all of the credit reference agencies, each of which have online portals that make it a quick and easy process. It is worth registering with all three because they have such different ways of assessing your credit history. Sign up for monthly updates on your score too, if these are available, so you are made aware of any changes, good or bad, in good time.
How to improve your credit scoreIf you aren’t sure you will get approved for a mortgage or are hoping for a better interest rate or LTV ratio than you have been offered, you might want to wait before applying and work instead on improving your credit score. There are plenty of ways in which you can do this, and, with the following, you should see a difference - even if only a small one - within a few months.
- Check your credit file
- Make sure you are on the electoral roll
- Make repayments on time
- Reduce your existing debt
- Stop applying for mortgages or other loans
What are the benefits of working with a bad credit mortgage broker?
Hassle free services that focus on youAt The Mortgage Hut, we work for you, not the lenders. We pride ourselves on offering professional, hassle free services that focus on you as the client. It's our job to give the right advice for your circumstances.
Mortgage industry expertsNot only are our advisers qualified to give advice in the mortgage industry, but they have in-depth knowledge of the sector. This includes knowing the types of mortgages that are available, including the bad credit mortgage sector, and the type of lenders that would be willing to take a risk on a borrower with bad credit. At The Mortgage Hut, we deal with over 90 lenders, with over 12,000 products so you’ll get the most suitable mortgage. Even if your case is complex, such as you have a low credit score or adverse credit, we have lenders who will happily consider your application.
Helping to get your Mortgage Application ApprovedBy providing a personal review of your finances, carried out by a qualified mortgage adviser, we can help you to identify any issues in your credit report or financial situation that could impact your chances of being approved. We’ll discuss these with you and how they can be addressed before you apply. We can speak to lenders on your behalf, explaining the situation to them. Mortgage applications are generally assessed on a case by case basis, so it’s important that the lenders underwriter understands the reasons for any blips or marks on your credit profile. As one of the industry’s leading mortgage brokers, we have good relationships with over 90 lenders, which means we understand the lenders criteria and underwriting process, so we know how to present the case to the lender.
Saving you money & timeWe see the bigger picture - in addition to helping you find the right mortgage deal, our specialist mortgage advisers can save you time and money by offering related financial advice. This may include helping you find buildings and content insurance for your new home or other types of insurance which could reduce the risk of your losing your home if you can’t make repayments, for example, critical illness or redundancy insurance.
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