Having an adverse credit history does not exclude you from taking out a mortgage, in many cases. However, there are a few things to bear in mind if you are in this situation. Lenders will look at the credit score of people who apply for a mortgage, to assess their ability to meet the repayments.
If you have a bad credit rating, it will make it more difficult for you to be approved for a loan. This might be because you have a series of missed payments on a direct debit or previous loan or a credit card, or simply because you do not have enough credit history to reassure lenders about the level of risk you represent for them.
Other factors that contribute to an adverse credit score include high amounts of debt, a recent declaration of bankruptcy, a County Court Judgement, or defaulting on payments. The main credit reference agencies in the UK are Experian, Equifax, and TransUnion. You are able to sign up and check your own rating online.
The lender may be prepared to overlook smaller issues, such as the odd late payment now and then. If other issues were in the past, they may ask for more detailed evidence of your current financial circumstances, such as income, loans, credit cards, and outgoings, to assess your ability to afford monthly mortgage repayments.
Remember that just because one lender rejects you, it doesn’t necessarily mean that another will, because they all use slightly different assessment criteria. If you think that your negative credit incidents are fairly minor, then it may be worth trying another lender.
Some lenders specialise in bad credit mortgages, but be aware that they will usually involve much higher rates of interest, and higher fees, so you will end up paying much more over the loan term. You may also be asked to put down a larger deposit, and they may be a lower limit on how much you can borrow, compared to a conventional mortgage.
Most negative items will affect your credit score for six years, so if your episodes of debt or default occurred four or five years ago, then it would be worth waiting for a couple of years and applying again. In the meantime, there are several steps you can take to improve your credit score.
Registering to vote will ensure you are on the electoral role. This verifies your identity, and means that all the information gathered is up to date and accurate. Take charge of your finances and manage them responsibly, by meeting all your regular payments on time and in full.
Review your outgoings, and cut back on any unnecessary expenditure. Try and avoid going into your overdraught if possible, and have a portion of your income left over at the end of each month. If some of the negative circumstances in the past were beyond your control, such as illness or redundancy, you can also add a note of explanation to your file.
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