With the global financial crisis over recent years, has come an increase in the number of people who have less than stellar credit. If you have missed payments on credit cards or loans, or you have payment agreements or IVAs in place, you will struggle to get a traditional mortgage.
To understand your mortgage situation you need to recognise what the current financial lending climate is. In contrast to the situation pre-2007 lenders are now extremely reluctant to provide a facility to people who don’t have a great credit rating.
So how do you actually know how bad your credit rating is? You can get details of your credit from Experian, Equifax or Callcredit; this is the best starting point if you want to apply for a mortgage and believe that there may be problems with your credit rating. You can apply for access to your credit report online or by post. Once you know that your credit is not good you need to look at your options.
Bad credit mortgages
Having bad credit doesn’t mean you can’t get a mortgage but it certainly makes it more difficult and costly. Bad credit mortgages are available to people who have a history of non-payment, IVAs, or have been made bankrupt. Of course the amount you can borrow will usually be restricted, often to 80% of what you could borrow without the poor credit, or even 60%. The interest rate you pay will also be higher; this is to compensate the lender for the increased risk they are taking in lending to you.
The option to repair your credit
Time is great healer and if you are willing to work on repairing your credit, and wait to apply for a mortgage, this may be your best option. But how do you repair your credit? There are a several tips you can consider in order to get your credit back to good health.
- If you have any credit cards that have large unused credit limits on them you should close them. Lenders do not generally like to see large available credit amounts if they are lending to someone with poor credit.
- Use a low limit credit card and make regular payments. Even if you don’t have great credit you may be able to get a low limit credit card. If you use this, and make sure that payments are made on time, you will show potential lenders that you are now a reliable payer.
- Make sure that you are listed on the electoral role.
- Don’t move address often; moving home on several occasions does not look good to lenders.
- Make sure that your current debts are managed by standing order so that you are at least making minimum payments. Even if you have had problems making payments in the past it is important to make sure your current payment reliability is good.
With time and patience you should improve your chances of getting an affordable mortgage.