Mortgages with a Poor Credit Score

‘Will a low credit score affect my chances of getting a mortgage?’

Published 6th March 2018

People worry that it can be difficult enough getting a mortgage deal with a reasonable credit score – but what do you do if you don’t even have that? If you’re in that position and you’re asking yourself, “How do I get a mortgage when I have no (or a low) credit score?”, then you’ve come to the right place. We’ve gathered together here all the information you need to help you to achieve your dream of homeownership.

  1. I’ve never had credit before. Is this a good thing?
  2. How this all effects you?
  3. A word of warning
  4. What next?
  5. Take care of the basics
  6. Make good any problems
  7. Start building a good credit history
  8. How can we help you?

As straightforward as this process is, it is likely you will still need some more in-depth advice into each area, so read on for more information.

Can I Get a Mortgage With No Credit Rating?

First up, an uncomfortable truth. You might think that if you haven’t had credit before – or if you’ve had very little credit, which you’ve paid off as agreed – then you’re in a strong position when it comes to applying for a mortgage. You have no black marks, no red flags, no financial skeletons in your closet. The bad news is that you are potentially in no better a position than if you had a chequered credit history – and, in fact, you could be worse off.

The reason is that lenders look for a pattern of behaviour as part of the process of making a lending decision, and if there is no record of behaviour to see a pattern in, then you are an unknown quantity. You could be seen as a risk, as they have no evidence that you can manage your finances well.

We know that seems unfair, but you need to know where you stand.

Poor Credit Score Mortgages

We’ve already mentioned that you could be seen as a higher risk if you have no or a low credit score. Let’s consider the potential impact of that on any mortgage applications you might make.

  • The lender says ‘No’ – they just turn you down flat.
  • The lender asks for a bigger deposit – they’re not prepared to offer you as much as you want to borrow, but they do make an offer, leaving you with the problem of coming up with the additional money.
  • The lender charges higher fees – limited choice could result in you having to pay more to the lender that is happy to assist.
  • The lender charges a higher rate of interest – they do this to reflect the perceived increased risk of lending money to you.

All of this can be dispiriting. It can feel like you are being unfairly punished, sometimes for no reason other than that you are just starting out and have yet to prove yourself.

Sometimes you just have to take their decision on the chin, either because you can’t at the moment raise a bigger deposit or because you have to wait for something to drop off your credit report. (Things typically stay on there for six years.)

Other things you can do something about, and we’re going to take a look at those things shortly.

How do I repair my credit?

If you’re trying your hardest to find a lender that will accept you for a mortgage, PLEASE resist the temptation to send as many applications as you can to a range of lenders in the hope that one or two of them will accept you. Mortgage hunting when you have a low credit rating is NOT a numbers game, and contacting multiple lenders at the same time will only cause further harm to your morale and credit score, for two reasons:

  1. Your only options for lenders to approach will be those you find on the high street or online. These mainstream lenders will always be the most cautious and least flexible when it comes to granting a mortgage, and the chances of refusal are high if you have a low credit score, or no credit history at all.
  2. Your approaches to multiple mainstream lenders (especially without expert guidance to make your application with a low credit score as strong as possible) is likely to result in multiple rejections. Being turned down for a loan or mortgage also shows up on your credit history, raising further red flags, and so a string of failed applications will only damage your credit score even more.

It is far better to be selective and targeted in your application for a mortgage when you have a low credit rating. Worried that you might have done something to harm your credit score? One of our experienced advisers will be happy to talk it over with you and propose a course of action to remedy the situation.

HOW TO INCREASE YOUR CREDIT SCORE?

Whether your bad credit score is caused by adverse events in your credit history, or no history of borrowing to speak of at all, the effects will be the same. Fortunately, there are a number of measures you can take to remedy the situation, show that you have a reasonable credit record and improve your score. Each will take a little work and you must allow time for the effects to show, but it’ll be worth it to be able to access the best possible terms on your mortgage.

Step 1: Take care of the basics

These are very straightforward things you can do that should not take long or be overly stressful. They establish that you are an accountable, responsible member of society and can be seen as simply good housekeeping. If you’ve experienced bad credit events in the past, it’s worth looking into these every year or two, just to make sure everything is as it should be:

  • Register on the electoral roll

This may seem a little obvious, but it’s surprising how many people are not registered at their current address, or may have moved house without thinking about changing the records. Getting on the electoral register provides a valuable form of I.D. verification, shows you are accountable and is a useful measure against fraud.

  • Close any unused credit accounts

If you have store cards or credit card accounts that are lying dormant, perhaps kept open ‘just in case’, then it’s a good idea to close them and make your finances as tidy and straightforward as possible. Credit agencies looking at your records may interpret unused open lines of credit as a sign that you may be worried about your finances.

  • Contact the three main UK credit agencies

Checking your own files is not the same as a lender making a check and will not affect your credit rating at all. The three main UK credit agencies, Experian, Equifax and TransUnion, all hold data on your credit history, and as they are independent of each other it may not be consistent. You’ll know where you stand with each and will be able to spot and correct errors.

  • Correct inaccurate entries

It’s vital that lenders see accurate information about you when they make a credit check. Make sure all data the agencies hold on your balances, accounts, dates, etc, is correct and up-to-date and, if not, immediately write to any agency holding erroneous information and ask for it to be corrected – you may need to supply supporting evidence. You might need to allow a few weeks for changes to be made before requesting new copies of reports to make sure it’s all gone through.

Step 2: Make good any credit issues

Once you’ve checked that all records pertaining to your credit history are correct, and amended any errors, you will now have a file that accurately reflects your current credit situation. Anything showing a healthy approach to borrowing, with consistent, timely repayments will cast you in a good light, but any blemishes and adverse credit events will affect your credit rating, and will need to be taken care of.

Not all bad credit items can be resolved simply (for example, you may have to work through a period after bankruptcy), but there are two key steps you can take to immediately tidy up your credit rating and improve your overall credit score. The more time has passed since they occurred, the less impact they will have on your credit score, but it’s definitely worth getting any issues from the last six years out of the way.

  • Settle outstanding debts

If you have any debts or balances that have been left hanging for a while, pay them off or try to pay them down if possible. This will lessen your number of financial commitments and help improve your credit score. If you have any defaults or CCJs against your name, these will slip off your record after six years, but you will be a better prospect for a lender if you have taken steps to settle debts rather than leave them, and move closer to a clean slate.

  • Make sure payments are up to date

While you’re looking at clearing the decks on your debts, check to make sure that any repayments are not overdue on any current borrowing. Remember, paying your bills and instalments on loans in a timely manner will count favourably on your credit record. If you consistently wait until the red bill arrives, this bad habit could unintentionally wreck your credit rating.

Step 3: Start building a good credit history

With your credit data and current borrowing arrangements all up to date and as tidy as possible, you are now ready to take further proactive steps to improve your credit rating. There are a couple of measures you can take to ensure your current financial activity shows you to be a responsible borrower – able to handle accounts, with a healthy attitude to credit – and are especially effective for people with little or no credit history.

  • Take out a credit card

This may seem counterintuitive at first, but one simple way to show you can borrow responsibly is to open up a line of credit, use it sensibly and pay off the balance in full and on time at the end of every month. You should not expose yourself to risk of heavy debt, and never allow credit to build up on the account, but use the card for your usual daily or weekly purchases instead of cash or a debit card. Paying it off as and when you should will create a record of regular payments and build up a clean credit file.

  • Open a savings account

As well as opening a new line of credit to pay off consistently, you can also start a savings account and pay into it on a regular basis to show you are able to live within your means and put money aside for contingencies, a deposit or a future large purchase. Even just putting in a little each month will stand in your favour on your credit record.

If you do nothing else, you must keep track of all your credit accounts and pay off balances when they are due. Any late or missed payments will appear on your credit report and remain on file for six years. One simple way to ensure payments are made on time is to set up direct debits from your bank account – this will prevent any stress over remembering when payments are due, but you’ll need to make sure there is enough money in your account to cover them.

If you stay on top of things now, you will avoid lapsing into a difficult financial position again in future. By building a good credit history, you will improve your credit rating and also your chances of successfully obtaining a mortgage.

Start building a good credit history

In order to prove you will handle your accounts responsibly, you have to have some accounts to handle. That means you need to access some form of credit. If you have a mobile phone on a monthly contract, then that’s a start and it should help – but not as much as having a loan from a major bank, for example. Here are some suggestions.

Can I remortgage with a low credit score?

Most mortgage lender’s run a credit scoring system, so if you have a low credit score that can make it difficult to meet the minimum credit score for each individual lender. Thankfully there are mortgage lender’s who do not credit score but ‘credit search’, meaning the lender will search your credit report as a whole to check that each account conduct meets their criteria not just focusing on the score.

Specialist Mortgage Broker

If you’re struggling to get a mortgage because you have no or a low credit score, or you’re just not sure what to do next, get in touch, because we can help. We have a specialist team of mortgage brokers who have experience of working with people with a low or no credit score, plus access to the lenders from across the UK mortgage market – meaning we can access deals you probably can’t. Contact us now for free initial no obligation help and advice.

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