When you apply for a mortgage you expect your credit record to be scrutinised, but are you aware of what impact certain events might have on the lender’s decision? When it comes to a missed or late payment for a loan, credit card or mortgage, for example, even if it was due to a genuine oversight, it shows up as an adverse event. There’s no distinction made between deliberate and accidental – so how will it affect you?
Since the credit crunch, lenders have tightened up their criteria considerably. Any missed or late payments are likely to have an impact on your credit score and what might seem like a minor issue to a borrower might carry much more weight for a lender.
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The Difference Between Missed and Late Payments
A late payment is one made after the due date has passed.
A missed payment is when you entirely fail to pay one or more scheduled payments.
They show on your credit report slightly differently – with one or more late payments, anyone scrutinising the record will see the figure ‘1’ next to them, indicating the money arrived one month late.
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With missed payments, the number will increase with every month the payment is left outstanding, so the report will show ‘2’, then ‘3’, then ‘4’ and so on. The number will freeze at the point payment is made.
Paying a bill a couple of days’ late – or even a couple of weeks, in some instances – may not even show up on your credit report. Despite this, it isn’t worth playing Russian roulette with payments – you should aim to make them on time, and be sure to allow time for the payment to be received and processed, too (generally three working days are recommended).
Can Late Payments Affect a Mortgage Application?
The short answer is that yes, they can. Lenders use the information on your credit report to assess whether you appear to be able to manage your money, and a history of late payments is a red flag that suggests you might not pay your mortgage on time, either. That makes you a bigger risk, so even if the lender is still prepared to make an offer, they might request a bigger deposit or charge a higher rate of interest.
Even if you feel a late payment wasn’t your fault – say, for example, you paid your credit card bill late because you didn’t receive your usual statement – it will still have an adverse effect. Lenders take the view that it is your responsibility to pay your bills; you know you have that payment to make every month and if you don’t get your statement you should contact the lender or check your account online; not receiving the paperwork is not a free pass to avoid paying on time.
For How Long do Late Payments Affect Mortgage Chances?
Late payments will stay on your credit record for six years, so will potentially impact your chances of approval or the type of deal you might be offered for that length of time. Generally speaking, the longer ago the late payments happened, the less chance there is they will have a serious impact.
What Happens When You Miss a Payment?
When you miss a payment, the lender will report the matter to the credit reference agencies. That starts a process whereby the length of time it takes before the account is brought up to date is registered by them. The number of months the account remains unpaid will be visible on your credit report and is likely to have an impact on any applications for credit you make – not just mortgage applications – for the duration it remains on your credit record.
If a payment is missed on a credit card, then your account will be frozen and, even if it isn’t up to the limit, you won’t be able to use the card until the account has been brought up to date.
If a payment is missed on a loan for, for example, a car, then the car may be repossessed.
If the loan is a mortgage or is otherwise secured on a property, then the property may be repossessed.
For How Long do Missed Payments Affect Mortgage Chances?
Like late payments, missed payments will also stay on your credit record for six years. Whether the payment was due on a secured or an unsecured loan also plays a part; missed payments on secured loans, including mortgages, are considered to be more serious than missed payments on unsecured loans, such as personal loans, phone bills and credit cards.
Adverse credit events tend to have more of an impact the more recently they happened, so a missed £25 mobile phone payment five years ago will have less of an impact than a missed payment of £250 on a personal loan five months ago.
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If you have just one or two missed payments in the last five or six years showing on your credit report, then while they probably won’t mean your application is declined, they might mean that your offer comes with a higher rate of interest or a request for a higher deposit. The more recent they are, the more impact they will have.
If you have multiple missed payments these are likely to have a far bigger impact on your credit score, and your options will be reduced accordingly.
As a general rule, provided you didn’t fall more than three months behind and have since brought the account up to date, you should be able to find a lender willing to make an offer.
If you are currently behind with payments, however, then your likelihood of being accepted for a mortgage drops again.
Missed mortgage payments are likely to have the biggest impact.
Missed or late mortgage payments
Missed or late payments on a mortgage account are considered to be very serious indeed. When people are in difficulty, the mortgage is generally the last account to be left unpaid, so when that, too, falls by the wayside it indicates serious financial problems. Arguably if there are just one or two payments that were made up to one month late and these are four or more years ago they will have less impact than a string of missed payments that happened more recently, whether that’s because the mortgage was paid late every month for several months, or went unpaid for several months.
If you are now up-to-date with your mortgage but have previous missed payments showing on your credit record, then your chances of acceptance and the deal you are likely to be offered will hinge on your overall credit rating.
If you are currently behind on your mortgage payments, then your chances of being approved for a fresh mortgage deal are slim to none.
In either case, your best bet would be to get in touch with a specialist adviser and explore your options. Just Mortgage Brokers are able to offer free initial advice.
What Can I Do To Improve My Chances Of Approval?
There are a number of steps you can take to help yourself when it comes to gaining approval for a mortgage.
1) Check Your Credit Report
The first step is to know where you stand, and the way to find that out is to get a copy of your credit report from each of the three UK credit reference agencies – Experian, Equifax and Callcredit. The reason it’s important to check all three and not just one is that they can hold different information, and you need to be able to see the full picture.
Next, check that your personal details are correct. If any details are incorrect, contact the agency and ask to have them amended.
If you are not on the electoral register then you should enrol, as this is an easy step that can make a big difference.
If you discover a missed payment that you were unaware of – for example, if you changed fuel supplier or mobile phone provider and a payment was missed along the way – bring that account up to date. It will still stay on your record for six years, but the fact that the account is paid looks much better than if it were not.
Finally, if any payments were made late or missed altogether due to reasons beyond your control – for example, you were in hospital, suffered a bereavement, or your employer went bust – contact the agency or agencies concerned and ask if they are willing to add a note of correction to the file. That is something that may well play in your favour in future credit applications.
2) Build Up a Good Credit History
Make sure you always pay your bills on time. Mark dates in your diary, set up a reminder on your phone or, better yet, set payments up on Direct Debit.
3) Save Up a Good Deposit
The more missed or late payments you have on your credit record – and the more recently they occurred – the smaller the loan-to-value (LTV) ratio you are likely to be offered, if accepted. The LTV is the amount of the purchase price of the property a lender is willing to offer, and can range from 95% for people with exemplary credit down to 70% or less for those with bad credit. Clearly, the larger the deposit you are able to put down, the better your chances of acceptance.
4) Seek Specialist Advice
If you have a history of missed or late payments on your credit record and are applying to high street lenders, not only might you be turned down by them, but the fact they are conducting credit searches might make the problem worse.
That’s because when a potential lender conducts a search on your records, it leaves a trace, and a lot of searches in a short space of time can have an adverse impact in your credit score. (When you search on your own records to check for accuracy, there is no trace left. You can search your own records as often as you need to.)
A specialist mortgage broker with knowledge and experience of bad credit mortgages will be able to source the best options for you.
We Can Help
At Just Mortgage Brokers, we have a specialist bad credit team that helps our clients secure affordable bad credit mortgages with missed or late payments. Our brokers understand the market inside out and know exactly where to turn to find the best deals. With unlimited access to the market and exclusive rates that are not available on the high street, we can help you fully consider your options.
We can also help you with your mortgage application and provide you with personalised specialist mortgage advice. Get in touch today for free initial advice and no-obligation quotes from our team of experienced bad credit brokers.