Can I get a mortgage with bad credit? Here’s what’s possible

Your credit rating is vital reading for would-be mortgage lenders, as well as a source of anxiety for you as you purchase your first or next home. You’ll be subjected to a number of soft and hard credit checks at various stages, including before a formal application is even made! You’ll need to pass a soft credit check to secure your agreement in principle for example.

If you’re already aware that your credit score is on the low side, knowing your options is a must. Read on to discover our top tips for getting a mortgage with bad credit.

Know what’s possible

So, is it possible to get a mortgage with bad credit? Absolutely! Yet, you may be restricted on the mortgage products that are accessible to you, with the deals you are eligible for likely to have higher interest rates due to the higher level of risk that comes with lending to you.

In the US, the government provides FHA loans to help those with bad credit get onto the property ladder. Unfortunately, there are no such schemes in the UK.

Check your score

Knowing how bad your credit score is will help you gauge any issues you could face during the mortgage application process and what action you should take to prepare. Her Experian explains what a bad credit score could mean for you:

“Your credit score reflects how lenders may see you. A bad credit score means lenders are likely to see you as more of a risk, so you’ve a higher chance of being refused credit. If lenders decide to approve you with a poor credit score, they may charge a higher interest rate to reduce the risk of you not paying them back. You may also find yourself limited to small borrowing amounts. Lenders tend to save their best deals for customers with high scores…”

Check your score before you get started with improvements. As well as assessing your current situation, look for and fix errors and inaccuracies that may be damaging your score, such as incorrect accounts, late payments and balances. Don’t be tempted to close old accounts though. Keeping them open can be good for your score.

Change your habits

Good payment hygiene matters, and even those with the worst habits can make positive changes to enhance their future financial health. Try to pay your bills on time (automatic payments and calendar alerts certainly help!), bring your current accounts up to date, and work with creditors to improve your outlook.

Remember, consistency is key, so stick to your new and improved habits as much as you can to see score improvements.

Reduce your usage

Your credit utilisation is an important aspect of your financial health. While using credit can be good for your credit rating, using too much can have the opposite effect. It’s recommended that you keep your use of credit below 30% of your limits.

Take the time to pay more off your credit and store cards to get balances to this point. Alternatively, you could ask for a credit limit increase.

Avoid new applications

From the moment you pledge to improve your bad credit rating to the time your house purchase goes through, avoid making any new credit applications. Each hard check can lower your score.

Concentrate all your efforts on improving your credit rating, and let us take the reins to secure you an even better mortgage deal. Find your local mortgage advisor today to begin.