Applying for a mortgage can be stressful enough, especially if you have a poor credit history. Even if you have a stable job, you may feel uncertain about your chances of getting a mortgage with bad credit. However, there are positive actions you can take to improve your chances of mortgage approval.
Lenders prioritise credit history over a stable income, so review and improve your credit score before applying for a mortgage. It might be possible to get a mortgage with a bad credit score through a specialist lender if you work with a mortgage broker.
Read on for Goldmanread’s guide on what to do if you have a less-than-perfect financial history before making a mortgage application.
For personalised advice on how to get a mortgage with bad credit, please get in touch with one of our experienced brokers. We specialise in helping professionals with bad credit to buy homes. We can help you find adverse credit lenders and secure a suitable mortgage deal for your circumstances.
What credit checks do mortgage lenders carry out?
Mortgage lenders typically conduct a ‘hard’ or ‘soft’ credit check to assess the applicant’s financial history and ability to repay the loan. This involves accessing the applicant’s credit report from major credit reference agencies like Experian and Equifax (and sometimes TransUnion).
During the credit checks, the lender reviews the applicant’s credit score, history of missed or late payments, outstanding debts, bankruptcies, County Court Judgements (CCJs), and any record of defaults.
They also look at current credit commitments (like loans, credit cards, and other mortgages), other outgoings (like household bills) and proof of income to ensure the applicant can afford the mortgage.
Does income security or credit rating have a higher impact on mortgage applications?
In a lender’s eyes, credit rating carries more weight than a reliable income. They are more interested in how applicants handle credit commitments than they are about how much they earn.
Even if you earn a good income in a secure job, a lender will judge you more harshly if they think you can’t handle your financial affairs.
That’s because they don’t want the extra risk, expense, administrative hassle, and bad publicity of dealing with clients who miss monthly payments, especially if this leads to repossession.
What is a “bad” credit rating?
The term “bad credit” is applied to a multitude of sins, from simply missing a payment on a credit commitment or bill to a County Court Judgement (CCJ) and, even worse, bankruptcy.
Most lenders have become more forgiving in recent years about minor credit “blips,” and generally, one or two missed payments will not be judged too harshly, especially if you have a regular income.
However, if your low credit score is a result of multiple defaults, County Court Judgements (CCJs) or secured loan arrears (especially defaulted mortgage payments), then it’s a different story. Mainstream lenders are unlikely to accept you for a mortgage, so your only option is to find a specialist adverse credit lender.
For reference, these are the credit score bands published by Experian:
- Poor credit rating: 300 to 579
- Fair credit rating: 580 to 669
- Good credit rating: 670 to 739
- Very good credit rating: 740 to 799
- Excellent credit rating: 800 to 850
What should you do if you have a poor credit history but a good job?
1. Check and review your credit report
It’s always good practice to review your credit report before you apply for a mortgage to ensure there are no mistakes or nasty surprises. Download a copy of your credit file from one of the two main credit reference agencies, Experian or Equifax (some lenders also use Transunion).
Examine your report in detail to understand how “bad” your “bad credit” really is. Be sure to correct any mistakes.
Then, consult a mortgage professional who can assess your credit report and point you in the direction of lenders who will consider you for a mortgage. Any reputable mortgage broker will request a copy of your credit report prior to applying for a mortgage on your behalf.
2. Minimise your existing debt
If you have bad debt in the past, it’s a good idea to pay off current loans or credit cards.
If you have had County Court Judgments or defaults, repay them as soon as possible. Lenders may be more lenient if a CCJ was paid soon after registration. However, if you pay it off just to improve your mortgage application, it may not hold much sway with lenders.
3. Avoid getting into new debt
It’s essential to prove to mortgage lenders that any financial mismanagement is in the past. You might consider taking a new credit card as proof of your ability to make timely repayments, but it’s important not to take on too much credit before applying for a mortgage.
4. Work with a mortgage broker
When looking for a mortgage with a history of bad credit, it is always advisable to work with an experienced mortgage broker. Lenders who offer bad credit mortgages will usually only do so through a mortgage broker and not directly to the public.
Most mainstream lenders have a policy of helping those with bad credit, but this policy varies from lender to lender. A professional mortgage broker will be fully aware of which lenders will consider your application.
Are you a working professional with bad credit? We can help you
At Goldmanread, we have a lot of experience dealing with clients who have experienced bad credit. We help a wide variety of home buyers in Essex, including first-time buyers, home movers and remortgages.
We have particular expertise in securing mortgages for professionals, such as doctors, lawyers and teachers. It’s not uncommon for professionals to experience bad credit due to student debt and irregular income patterns. If you are in a professional occupation or training for one, we can direct you towards mortgage lenders who are willing to help.
For more advice on adverse credit mortgages, please get in touch with us today.
