Can you get a mortgage if you have a bad credit rating?

Buying a home of your own can be very stressful, especially if you are concerned about your credit rating. With 1 in 5 Brits having a poor credit score and 1 in 10 having no credit history at all according to this research, applying for a mortgage can be a particularly trying time. As Equifax recommends, getting credit ready is something that could be done before you begin the application process:

“Check your borrowing history in advance. This allows you to dispute any inaccuracies so that lenders will receive correct information on your ability to repay debts. Your credit score, on the other hand, will give an indication of how creditworthy lenders may find you. If your score is low, you may want to see if there are any credit habits that you need to improve on before making the mortgage application.”

If your score is on the low side, you may want to read on to discover how this could impact your finances and your prospects when purchasing a property.

What’s considered a bad credit rating?

Different credit reference agencies calculate scores in varying ways, but most rank your credit rating as either very poor, poor, fair, good or excellent.

They’ll also provide a numeral value, which ranges from 0-560 for a very poor rating, 561-720 for a poor rating, 721-880 for a fair rating, 881-960 for a good rating, and 961-999 for an excellent rating on Experian. These ranges differ with Equifax and TransUnion.

How can a poor credit rating affect your finances?

A bad credit score or rating can spell disaster for your finances. As this score represents how lenders could judge your financial health, lenders will be less likely to give you credit.

Those with poor credit scores are at a higher risk of being refused for credit completely. They’ll also miss out on the best interest rates, promotional deals and rewards, meaning they’ll often pay more in the long run due to the increased lending risk. People with bad credit tend to be given lower credit limits as a rule of thumb too.

What about when buying a home?

Despite all the negatives that a bad credit rating can mean for your financial freedom, it is still possible to get a mortgage. In most cases however, you’ll have to have a reliable source of income, a small amount of debt in comparison to that income, and a hefty house deposit.

There will be fewer mortgage products available to you if you have bad credit, and you’re also likely to face higher interest rates and fewer rewards. An adverse credit rating could impact the remortgaging process too leaving you with limited product choice.

What can I do to turn my score around?

Bad credit can be turned around, but this will take time to rectify, especially if you fall within the ‘very poor’ category. Better yet, you can start today by making a conscious effort to make payments on time and stay within your credit limits. Paying more than the minimum monthly payment on credit and store cards can also improve your fortunes, bringing you one step closer to purchasing a home with a mortgage product that works for you and your circumstances.

Keeping track of old accounts and closing those that are inactive can have a positive effect on your credit rating. Make sure you tick off the basics, like registering on the Electoral Roll too.

Simply sharing an account with someone with bad credit can have a negative impact on your rating, so be careful who you are linked with. If you aren’t connected to a person with bad credit any longer, ask for the link to be removed from your credit report.

If your credit score is looking up, it’s a great time to explore your mortgage options. Let our independent mortgage advisors guide you through the products that are the perfect fit. Contact us today to discuss your circumstances.