This is one of the most common questions that people type into a search engine or ask a mortgage broker. The simple answer is yes! However, when you actually delve deeper into what is meant by bad credit, there are a lot of caveats to that ‘yes’ answer.
Firstly, what you need to know, dear reader, is that a mortgage broker doesn’t actually care if you have bad credit. We’ll ask to see a copy of your credit report and for an explanation, but we are certainly not here to judge anyone and it’s actually highly likely that we will have seen worse. All we are interested in is whether we will be able to help you get a mortgage.
What do you mean by ‘bad credit’?
There isn’t 1 particular definition of bad credit that suits all circumstances. To some people, a missed credit card payment 2 years ago might constitute bad credit. To someone else, it might be a £5000 default and a £2000 County Court Judgement (CCJ). To lenders, it could be something else entirely.
What bad credit will lenders accept?
This varies, lender to lender. Some lenders won’t lend any money to you if you have just a couple of missed credit card payment in the last 6 years. Yes, they are that strict. They are sometimes known as ‘prime’ lenders. Some other prime lenders aren’t quite as fussy and there are some that are happy to lend even with a satisfied default a couple of years ago. Then there are other lenders often known as ‘sub-prime’ or ‘adverse’ lenders. These are the lenders that will charge you a higher interest rate, but in return, will allow a far greater degree of flexibility when it comes to your credit report. They often have an actual human being look at your application and decide whether to approve it, rather than a ‘computer says no’ type of model. This gives applicants greater flexibility and mortgage brokers are able to talk through a case and explain circumstances. Often, there’s a life event that can explain bad credit, such as divorce or death in the family. These ‘adverse’ lenders are able to look at those type of situations and understand that life isn’t always perfect.
So, do you have a reason to think you can’t get a mortgage? Again, the simple answer is no. In my opinion, if you know you have a bad credit history, speak to a mortgage broker who can advise you.
What do mortgage lenders look at on your credit report?
Mortgage lenders look at various things when running a credit check on you. They’ll look at whether there are any missed payments on any accounts, any defaults or CCJs, any debt management plans, whether you’re on the electoral roll, how much credit you’re using out of the credit available to you, and longevity of accounts. Each lender has their own rules about these things and what they will allow. The scores they give you (the score you see on your report isn’t what the lenders see) and the rules they have aren’t known by mortgage brokers, but once we see your credit report, we can research the best lender that will accept your application.
What’s the worse type of bad credit?
In the eyes of the lender, missed or late payments on an unsecured account (credit card/personal loan) are the least troublesome. If it’s a utility account (gas/electric/water) there are even some lenders that won’t even take it into account.
Missed or late payments on a secured account is where things get tricky. Lenders start to see your application as a risk, especially if these missed payments are recent. You will usually have to bring your accounts up to date for a minimum of 3 months before a lender will look at your application. However, if your missed payments are 3+ years old, then you are far more likely to be accepted as the risk is diminishing.
Defaults and CCJs also depend on how recent they are. The amount can also work against you, as can whether you have decided not to repay them. An old default from 5 years ago for £200 is probably not going to matter. However, if your default or CCJ is within the last 12 months and for £3500, then chances are more work is going to have to go into finding a lender that will potentially accept your application.
Debt management plans and IVA’s can be worked with, although the options available are limited, especially if they are still active.
The worst type of ‘bad credit’ is probably bankruptcy. This paints a picture to a lender that the person who went bankrupt was unable to manage their finances and this presents a risk. Often, there is a minimum period of time that you will have had to have been discharged from bankruptcy for before a lender will even consider an application.
What’s the message?
The overall message here is two-fold. Firstly, recognise that having an adverse credit history doesn’t automatically count you out from getting a mortgage. Secondly, speak to an expert to gain clarity about your situation and what is available to you. If you can’t get a mortgage immediately, a mortgage broker will be able to put a plan in place for you, in order to qualify for one.
