Though a bad credit history will certainly not impress your mortgage lender, it does not mean that your mortgage application will be destined for rejection.
As part of the mortgage application process, the mortgage lender will check out your credit report.
Do you have bad credit?
Your credit is likely to be low if you have ever been declared bankrupt or had a Country Court Judgment against you. Minor things, such as missed credit card payments, exceeding overdraft limit or having a lot of debt are likely to impact your credit rating.
You can also have bad credit if you have never had any debt. When you have credit agreements, such as mobile phone contract, credit card, personal loan, it will build up your credit history. If you were not able to make the payments on time or clear a debt, it would affect your credit rating.
Further, if you have never had any credit agreements, it will count against you as the mortgage lender will not be unable to access what kind of borrower you are.
Mortgages for bad credit
Though it may be more difficult, it is certainly not impossible to get a mortgage is you have a low credit rating.
Some lenders have mortgage products specifically designed for people who have been rejected by the standard mortgage lenders or have a poor credit history. However, before you go for one of these products, you must first improve your credit rating. Here are the steps you can take to improve your credit rating:
- Stop applying for mortgages – You must not apply for another mortgage once you have been rejected from one and figure out why it was denied in the first place and resolve the issue. If you have multiple rejected mortgage application, it will decrease the chances of ever getting a mortgage.
- Resolve the issue – Take a look at your credit report for mistakes and inaccurate information.
- Save for a larger deposit – The larger your deposit, the amount you will have to borrow will be smaller. This makes your loan to value ratio smaller and increase the chances of your mortgage application being accepted.
- Please read our guide on how to make a successful mortgage application
- Mortgage broker - Speak to a mortgage broker once you have improved your credit rating. A good mortgage broker will be aware of the products available in the market and will be able to recommend suited to your circumstances.
How to improve your credit rating?
There is plenty which you can do to improve your credit rating. You have to show that you are a reliable borrower with a stable in-flow and outgoings. You can do the following which will improve your credit rating:
- Register as a voter
- Pay your bills on time
- Decrease the amount of debt you are in
- Get a credit card and make time payments