If you need a mortgage then having a clean credit file can be vital.
We’re going to look at exactly why credit reports are so important for most UK lenders and what they look for.
- Credit management
A mortgage is a loan, so like all other lines of credit, lenders want to see some sort of history before they might lend to you. If you’ve taken out loans in that past and have paid them back all on time, it can give lenders reasons to believe you’ll be a safe borrower. Even if you have a credit card, making payments each month and paying the balance in full can do wonders for your credit score. It also shows lenders that you’re able to make monthly payments without fail.
If you’ve failed to keep up with credit payments, then of course lenders may see you as high risk. If you’ve taken loans with other companies and not paid them back, how sure can they be that the mortgage will be repaid? This doesn’t mean to say that if you have missed payments then you can’t get a mortgage. Mortgage brokers are able to speak to lenders and explain situations that may appear on your credit file. For instance, you may have relocated or changed jobs or you might have had a troubled period in your life.
- Adverse credit
Adverse credit is where your credit report flags up credit issues.
This is more than just a low credit score. For example, you may have been repossessed, had a CCJ, bankruptcy, IVA, etc. Any issues such as these would require you to apply for an adverse credit mortgage.
Simply going to the banks will probably leave you with a declined application (which can further damage your credit report, more on this later).
Adverse credit can come in all different shapes and sizes. The number one factor on how adverse credit can affect your mortgage is how recent the event was. For example, a recent CCJ is considered more of an issue than a repossession that happened 8 years ago. The next most important factor is how severe the adverse credit issue is. Missed or late payments are treated with more understanding when compared to an IVA for example. That said, if the IVA was a historic issue and you’ve recently been late with payments, the late payments may have more of an effect than the IVA!
- Multiple applications
Many people with credit problems will often go to their own banks in the hope that they’ll be approved. This is perhaps one of the worst things you can do. High street lenders tend to dismiss applicants with credit problems. The main issue here is, that when you apply for a mortgage, footprints are left on your credit file. If you’re then declined a mortgage, this can further damage your credit score. Going to numerous different lenders and hoping for the best is detrimental to your credit file, which you should be protecting.
You can use specialists that deal with adverse credit mortgages, such as Expert Mortgage Advisor. Using a specialist can ensure that your applications are only ever put forward to eligible lenders and not lenders that you’ll be rejected by. Every lender is different and brokers will usually know the right lenders to approach, depending on your circumstances. If brokers specialise in mortgages with poor credit, they’ll usually have access to specialist lenders that focus on adverse mortgages, which is great news if you have a poor credit score. Such lenders are also generally only available via brokers and can’t be approached directly.