Mortgage lenders will need to look at your credit score, but keep in mind they’ll also look at your credit report as a whole and your financial situation to assess the affordability of a mortgage loan. Obtaining a mortgage with bad credit can be challenging, especially if you have a county court judgment (CCJ), individual voluntary arrangement (IVA), default or a bankruptcy in your credit history. The good news is that there are avenues to obtain a mortgage, even with bad credit!
Advice for Getting Bad Credit Mortgage
Credit history is a big factor that lenders consider when deciding whether to approve or deny a mortgage, but there are other factors to be aware of as well. Addressing the following items can improve overall chances of success at obtaining a mortgage with bad credit.
- Honesty is key: You can count on mortgage lenders to conduct thorough searches, and trying to hide bad credit history will not likely work in your favour. Lenders may appreciate a proactive explanation of how you got into financial trouble and what has changed since then.
- Allow for more time to pass: Credit reports typically contain data trailing the past 6 years and negative marks on your record could be seen as less serious over time. This is especially relevant if your financial situation has improved.
- Make positive changes known: It’s generally better to apply for a mortgage when you have stable income. It can also work in your favour to offer a higher deposit although this may mean considering cheaper properties for purchase.
- Take steps to improve your credit history: Establishing a pattern of consistent payments and responsible credit usage can go a long way.
Resources for Repairing Credit to Obtain a Mortgage:
- Credit Builder Cards Explained: credit builder cards offer another way of building credit for those who have bad or no credit.
- How to Repair Credit in the UK: a guide to begin the process of repairing your credit score.
- 8 Ways to Build Your Credit Score You Didn’t Know About: dig into some of the more unconventional ways to give your credit score a lift.
Are There Mortgage Lenders That Don’t Need Credit Scores?
Yes and no. Lenders will almost always conduct a credit check and look at the credit score of anyone applying for a mortgage. However, it’s worth noting that some negative marks on your credit history will carry more weight than others. The amounts of money involved and how much time has passed plays a big role in the consideration by lenders. While it is possible to get a mortgage with poor credit history, your options will likely be more limited than others.
What Types of Lenders are Most Likely to Approve a Bad Credit Mortgage?
There are three types of lenders that might approve a bad credit mortgage. You’re probably asking, ‘What are my options?’ We’ve listed the options below from the least likely to most likely lenders to approve a bad credit mortgage:
- High Street Banks: If you have bad credit, some high-street banks are likely to refuse approving you for a mortgage outright. Due to the high volume of applications and the nature of these organisations, the chances of approval are lower with these institutions.
A few examples of high street banks are:
- Building Societies: Occasionally, building societies are known to be more flexible with their mortgage lending. This is because customers are known as members and technically own a stake in the organisation. Building societies do not have shareholders expecting dividend payments the same way high-street banks do.
A few examples of building societies include:
- Bad-Credit Specialist Mortgage Lenders: There is a third category of lender which usually caters to people who’ve faced divorce, illness or other difficult life events, these can include building societies who specifically offer flexible mortgages. These lenders tend to offer more flexibility when reviewing your mortgage application. However, it’s important to know that they often charge higher-than-average interest rates and require larger deposits in return for this flexibility.
A few examples of bad-credit mortgage lenders are:
A New Way to Build Credit
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