Credit problems could include anything from a missed bill payment to having your home repossessed.
Relatively minor credit problems like a single late credit card payment won’t stop you from getting a mortgage. But if you've been declared bankrupt or had a county court judgement (CCJ) in the last six years, you’ll struggle to find a lender who'll accept you.
There are lenders who might consider people who have been rejected for mortgages elsewhere. But you won’t have as much choice as those with no previous credit problems.
That means you’ll probably have to pay a higher interest rate and fees.
When you apply for a mortgage the lender will ask whether you’ve had past credit problems, including any defaulted credit card and loan payments, or CCJs.
If you have missed repayments on bills, credit card or loans in in the past, you’re likely to be asked for extra evidence that you can afford to pay a mortgage now.
The lender might want to see more payslips and bank statements than it would if you had no past credit problems.
Take some steps in the months before you apply for a new mortgage to increase your chances of being accepted
Postpone buying a home until you're in a stronger financial position.
In the meantime, build your credit rating back up by making repayments for bills and credit cards on time. And save more for your deposit.
Although that could take months or even years, it’ll give you access to more competitive mortgage rates in the future, which will save you money in the long run.
You can use free services like Experian or Credit Karma to look at your credit report and see when you’ve missed payments or had CCJs.
These services will also show you a credit score, although this is just to give you a general idea of your creditworthiness. Each lender will score you differently against their own criteria.
Once you’ve assessed your credit problems, you can work on fixing them.
Anything from a single missed payment to bankruptcy can affect your ability to get a mortgage. You should start pushing up your credit score well in advance of a mortgage application by making all repayments for bills and credit on time.
One way to do this is with a credit builder credit card, but only once you feel able to handle the responsibility and repayments.
Low-deposit mortgages often have tighter acceptance criteria. The more deposit you have, the better chance you have of finding a mortgage you're eligible for.
Lenders might ask that you have a larger deposit if you have bad credit - for example around 20-30%, instead of 5-10%.
If saving that larger deposit is a struggle, most lenders will accept a deposit if it's 'gifted' from a family member. This can't be a loan and you must be under no obligation to repay the money.
In the future you might find you’re in a position to repay the money. There's nothing stopping you from 'gifting' the money back to them then.
If you're unable to get a mortgage because of bad credit, a family member might be willing to be named as a guarantor.
You both need to consider the implications. The guarantor will have a charge placed against their own home. That means if you default on your mortgage payments, your guarantor will be asked to pay. They could even have their house repossessed if they can’t.
You and your guarantor will be tied to each other financially. Any missed repayments in the future will affect both your credit ratings.
Even if you have a guarantor, you’ll still need to be credit checked to get a mortgage. You could still be turned down due to a poor credit rating.
A mortgage advisor will help you find the right product for your needs and help you with your application. You'll have to pay for their services, but it could help you to find a deal you’re likely to be accepted for with past credit issues.
A mortgage lender will credit score you as part of the process of deciding whether to offer you a mortgage and defaults within the last six years will show up on your credit report.
Because of this, it’s best to wait for credit problems to drop from your credit file, all while making payment for other bills and finance on time to strengthen your credit score.
But that could take months or years. If you’d rather apply immediately, there are a few advantages and disadvantages.
There’s no cut-off credit score you need to achieve to get a mortgage. That’s because there’s no such thing as a single credit score that all lenders use. When you apply for a mortgage, the lender will look at your credit record and apply its own credit scoring.
But there are some things you can do to improve your credit score with all lenders:
It’s possible to remortgage with bad credit, especially if your credit problems are quite minor, like a single late payment.
As with any other mortgage applicant, you won’t be eligible for the best deals. Interest rates and fees will be higher.
Use a free online credit report service. You’ll have to provide details about your banking and credit accounts to access your report.
It's likely you'll have to wait until your bankruptcy is removed from your credit record, which can be six years from the date of your bankruptcy.
If you've fallen behind on mortgage payments, or even had a home repossessed, finding a mortgage again can be quite difficult. But it's not impossible.
You’ll have to rebuild your credit score by paying all bills on time. And you’ll probably need to use a mortgage adviser to apply to a lender that might accept you - despite having a past repossession.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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