Bad credit mortgages

When you apply for a mortgage the lender will assess your credit rating, salary and other circumstances, to determine how much risk is involved in lending to you.

If you don’t have a great credit rating getting a mortgage can be difficult, but there are steps you can take that may improve your chances of getting accepted.

What is a bad credit rating?

Your credit rating is based on all the borrowing you've done in the past, and is used by lenders to determine how likely you are to default on a debt. Different lenders will have different lending criteria, but here are a few of the things that could negatively affect your chances of getting a mortgage:

  • If you didn’t stick to the terms of a previous credit agreement, for example you failed to keep up loan or credit card repayments.
  • You’ve had credit card debt and only kept up with the minimum repayments rather than clearing your debt in full each month.
  • If you’ve been declared bankrupt or been put on a debt management programme, such as an IVA or you’ve had a CCJ against you.
  • If you’ve never borrowed before. Sometimes no credit history at all can negatively affect your ability to borrow.

How to check your credit rating

If you’re worried about your credit rating, you can check it by applying for a credit report from companies such as Experian and Equifax who charge a fee to process a report for you. Some offer free trial periods if you haven't used them before.

How to improve your credit rating

If you do have a poor credit rating, there are a few things that you can do that might improve your chances of borrowing:

  • Make sure you're on the electoral roll at your current address
  • Pay all your bills on time and in full
  • Close down any credit accounts you don't use
  • Consider applying for a credit building credit card, but only if you’re sure you’ll be able to keep up with repayments
  • Check your credit report regularly so you can rectify any misinformation quickly
  • Make sure you're not still associated financially with anyone you used to live or share a bank account with, as any borrowing on their part will affect your credit rating. You can get a notice of disassociation from the credit reporting agencies mentioned above to end this relationship. .

Other things that can help you qualify for a mortgage include:

  • Save as much as you can towards a deposit. The smaller the proportion of the property value you need to borrow, the easier it’ll be.
  • Have a rainy day fund in place in case things go wrong. As well as ensuring you have enough to cover the everyday costs of homeownership, this also demonstrates your ability to manage your finances to lenders.

If a lender turns you down, consider taking steps to improve your credit rating. Being turned down can make other lenders more reluctant to lend, and multiple applications can affect your credit rating – so don't simply keep applying. You might also want to talk to a mortgage adviser who can make personalised recommendations based on your circumstances.

Last updated: 27 May 2015