Applying for any form of credit usually involves the lender performing an initial check of your credit rating; this is especially true when it comes to mortgages. Checking your report enables them to see how reliable you have been in the past with financial products. With this information they will decide whether or not they are going to approve you for a mortgage, and if so, what interest rate and terms and conditions you will be bound too.
There a number of things that can negatively and positively affect your credit rating, such as; maxing out credit cards; declaring bankruptcy; collections; opening several accounts within a few months; and at the other end of the spectrum – repaying credit cards / loans promptly; living at the same address and being in the same job for some years etc.
So, if it turns out that your credit rating is quite low, getting a mortgage is going to be a bit trickier than if you had a higher rating. However, all is not lost! There are a number of steps that you can take and these have been outlined below.
- The first thing you should do is get in touch with a mortgage broker or IFA (Independent Financial Advisor). They will be able to put you in touch with lenders that will consider you and help you do through the following steps.
2. Get a copy of your credit report. You can either do this yourself or get a broker to do it for you. If you’ve been declined, then checking your reports to make sure there are no errors negatively affecting your credit rating will be well worth it. It’s a good idea getting a ‘tri-merge’ report, which merges reports from all 3 of the credit report agencies(Equifax, Transunion and Experian). If you do find any errors, these can disputed online at the agencies websites.
- Start improving your rating as soon as possible. This will take time, but it’s wise to try and improve before applying/reapplying for a mortgage. Sometimes an improvement of only a few points will put you into a better category, allowing you access to lower interest rates, better terms & conditions and of course, a bigger mortgage. You can improve your score in a number of ways; paying bills on time; paying off existing lines of credit; not opening any new lines of credit etc.
- Shopping around is vital when you have a background of bad credit. This is because many lenders are eager to lend to individuals with a low credit rating because they essentially have fewer options. They can be charged higher interest rates and there is an increased chance that they will default on the loan. The good news here though, is that the number of reputable lenders who offer bad credit mortgage loans is constantly increasing. It’s worth noting though, that although requesting quotes from multiple lenders is a good idea, it’s important that you stipulate that you are just seeking a quote. This is because your credit report shows if you make multiple credit applications, and lenders can interpret multiple credit applications as a sign that you are desperate for money or have been rejected elsewhere.