Don’t let bad credit stop you from buying a home

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UK government figures painted a mixed picture when it comes to household debt and the pandemic. Savings increased and unsecured debt decreased, although total household debt increased by more than 2%. However, even though households have been able to build savings and reduce their unsecured debt over the past 2 years, it seems that an increase in the cost of living could hit many of them in the pocket.

We are already seeing signs that more and more people are struggling, with an increase in 61% of people taking debt relief orders (DRO) compared to a year ago. This indicates that there will be an increasing number of potential buyers who will worry that poor credit history is a barrier to purchasing this property. But past credit problems, even in the recent past, don’t necessarily mean you won’t be able to find a mortgage lender. There are steps you can take to improve your chances.

Face your problems

You won’t go anywhere without first acknowledging that you might have a problem. To get an idea of ​​how serious this problem is, the first thing you should do is check your credit history by looking at your credit report. It’s easy to do online. Whichever online service you use, your credit report will be created using data from the 3 major credit reference agencies: Experian, Equifax and TransUnion.

Your credit file contains a score. All reporting organizations have their own scale, but you will always be able to tell if your credit score is ‘good’ or ‘bad’. Since the data is always drawn from the same sources, there is no advantage in requesting another report from a different organization. If your credit score is bad in one report, it will be bad in all of them.

When lenders review a mortgage application, they will take into account any problems you have had with credit in the past. These are shown on your credit report and are used to calculate your ‘score’, although this is not the only factor that lenders consider, knowing your credit score will give you a good idea of ​​how lenders will see you.

Try not to make it worse

If you’ve discovered that your bad credit report has given you a bad credit score, there are some things you can do to improve it. You can also make sure you don’t make it worse. Certain activities will even make bad credit mortgage lenders very cautious about lending to you. The most important thing to avoid is using short-term loans, also called payday loans.

You also need to make sure you don’t miss any credit card or loan payments, or use unauthorized overdrafts. Finally, once you’ve applied for a mortgage, try not to make any changes to your employment status, such as moving to part-time hours or changing jobs. Showing a consistent long-term employment pattern can help your application succeed.

Can you make immediate improvements?

In addition to improving the way you manage your finances, making sure you don’t miss any payments, etc., it may be possible to improve your credit report with a few quick fixes.

Are you registered on the electoral lists? If you’re not, it can damage your credit score, so check and sign up if you haven’t already. Also, don’t assume that the information on your credit report is correct. Errors can occur, and if so, you can request that they be corrected. Last, but not least, take this opportunity to make sure no fraud has taken place. Is there a loan or credit card application that you don’t recognize? It’s unusual, but identity theft does happen, and if someone has taken out credit in your name, it could hurt your credit score.

Try to increase your deposit

Yes, we know, you’re probably tired of hearing reviewers tell you to skip your to-go coffee or pack your own lunch to work to save money. The truth is, however, that a larger deposit can increase your chances of getting a mortgage. This is especially true if you’ve had financial problems in the past, as lenders will often require you to put down a higher percentage of the purchase price than buyers with good credit histories.

If you’re thinking of buying your first home and you’re under 40, take advantage of the government’s Lifetime ISA scheme, which generates a 25% bonus each tax year on up to £4,000 in savings. If you don’t qualify for a lifetime ISA, at least make sure that any savings you have are in the best place to earn you interest. A potential benefit of the rising cost of living is an increase in savings account interest rates, so keep an eye out for any changes and take advantage.

Organize your papers

Problems with mortgage applications can arise for many reasons, including incorrectly completed forms or missing documents. If you’re already struggling with a bad credit history, you want the rest of the process to go as smoothly as possible. Take the time to gather everything you think you will need, such as payslips and bank statements. Knowing what you need can be tricky, which brings us to…

Talk to a Bad Credit Expert

Using a mortgage service for bad credit to help you get a mortgage has many benefits. A specialist adverse broker will know what documents lenders want and ensure forms are filled out accurately and completely, based on the lender’s adverse criteria. For applicants with really poor credit histories, an expert poor credit mortgage broker may be even more beneficial. This is due to the fact:

  • Each lender has a slightly different set of criteria when evaluating applications. Some may be more tolerant of irregular work patterns; others may consider applications from people with CCJs and more severe defects
  • As the financial landscape and client circumstances change, so do lender criteria.
  • Specialist brokers build relationships with the best adverse lenders, with over half of bad credit mortgages not available directly on the high street, this means they are best placed to match your situation with the most favorable lender. appropriate.

Conclusion

Although applying for a mortgage through a broker does not absolutely guarantee success, it can certainly improve your chances. We live in uncertain financial times, but that doesn’t mean you have to put your life on hold. If you are considering buying a property, but are concerned about the impact of your credit score, there are things you can do. You don’t have to give up on your dream.

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