Understanding the world of mortgages can be difficult at the best of times. If you have bad credit, it’s important to remember that contrary to what you might have heard already, you can still apply for a mortgage.
Let’s take a look and debunk some of the myths you might have heard.
Myth #1. Mortgage lenders won’t accept me because of my poor credit
Contrary to what many fear, there’s no ‘blacklist’ or minimum score that you need to have in order to successfully apply for a mortgage – this is unique to each lender and there are other factors that they will consider in your mortgage application. In fact, there are specialist lenders out there who provide mortgages for people with bad credit. You can apply for what is known as an adverse credit mortgage.
The mortgage rates with adverse credit may be higher and you cannot access specialist lenders directly. This is why it’s best to seek advice from a broker who will look at your individual circumstances and find the best mortgage product for you.
Myth #2. My partner has poor credit so I won’t be able to get a mortgage
You may have heard of “financial association”. You become financially associated with someone through joint finances or a joint credit account. Your credit report will show who you share finances with. As long as you have no financial associations with your partner (for example a joint loan or credit card) their bad credit will have no direct impact on your individual mortgage application.
If you are financially linked to a partner with adverse credit, the good news is that there are lenders who will still consider your application whether you’re buying a house on your own or looking for a joint mortgage. Mortgage brokers work with a diverse panel of adverse credit mortgage lenders offering solutions tailored for people with a poor credit record. So a broker may help find you a mortgage in even the most complex of circumstances.
Myth #3. Making lots of applications will increase my chances of being accepted
If anything, the opposite is true. Each application you make will leave an imprint on your credit report, which is also visible to other lenders you approach. And if you make several applications in a short period of time, it can come across that you’re desperate for credit and less likely to make repayments on time.
This can also affect your credit rating further so if you do opt to approach different lenders, do your research in advance and spread out your applications. A lender can also get a Decision in Principle for you, which is a statement that in principle they will lend you a certain amount based on basic information provided. This will not impact your credit rating however it is also no guarantee that a mortgage will be offered later.
A safer option is to use a mortgage broker who can research your options for you and apply with the right lender based on your situation.
Myth #4. My credit rating stays the same for life
Credit history is exactly that – history. If you work on your financial situation, your credit rating will improve. There are various steps you can take to fix your bad credit rating, from as simple as getting on the electoral register to closing unused credit cards.
The key to improving your credit score is checking your credit file. There are three main credit scoring agencies in the UK: Equifax, Experian, TransUnion. They may charge you to access their services, although it’s possible to get a free 30-day trial or to access your credit file for free through other online providers. A paid-for membership with one of the main credit agencies might offer you more up-to-date and in-depth information on your credit history. We recommend checkmyfile.com as it uses all three credit agencies.
Myth #5. I will always have a high interest with a ‘bad credit mortgage’
We have already debunked the myth that the credit rating does not change. Your credit rating will fluctuate over the course of your lifetime. While you might need to pay a higher interest rate in the short term, when it comes around to remortgaging if your credit history has improved you may be able to get a better deal with your mortgage rates.
Remortgaging doesn’t have to happen only when your mortgage term comes to an end, however, bear in mind that remortgaging is not cost-free and most lenders will impose early repayment charges. So you need to weigh all your options and look at all the costs involved to make a decision that makes the most financial sense.