UK Government figures painted a mixed picture in relation to household debt and the pandemic. Savings increased and unsecured debt fell, though total household debt increased by over 2%. However, even if households were able to build savings and reduce unsecured debt over the past 2 years, it seems that a cost-of-living increase may hit many of them in the pocket.
We are already seeing signs that more and more people are struggling, with an increase of 61% in the number of people taking out debt relief orders (DROs) compared to a year ago. This indicates that there will be increasing numbers of potential homebuyers who will worry that poor credit history will be a barrier to that property purchase. But problems with credit in the past, 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 get anywhere without first acknowledging that you may have a problem. To get an idea of how severe that problem may be, the first thing to do is check your credit history by looking at your credit report. This is easy to do online. Whichever online service you use, your credit report will be created using data from the 3 main credit reference agencies: Experian, Equifax, and TransUnion.
Your credit report contains a score. All reporting organisations have their own scale but you will always be able to tell whether your credit score is ‘good’ or ‘bad’. As the data is always drawn from the same sources, there is no benefit in requesting another report from a different organisation. If your credit score is poor in one report, it will be poor in all of them.
When lenders look at any 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’, while this isn’t the only factor that lenders consider, knowing your credit score will give you a good idea of how lenders will view you.
Try not to make it worse
If you’ve discovered that your bad credit history has given you a poor credit score, there are some things you can do to improve it. You can also make sure that you don’t make it any worse. Some activities will make even specialist bad credit mortgage lenders very cautious about lending to you. The most important thing to avoid is using short-term loans, also known as payday loans.
You should also make certain that you don’t miss any credit card or loan payments, or use unauthorised overdrafts. Finally, once you have submitted a mortgage application, try not to make any changes to your employment status, for example moving to part-time hours or changing your job role. Showing a consistent long term pattern of employment can help your application succeed.
Can you make immediate improvements?
As well as improving the way you look after your finances, making sure you don’t miss any payments etc, it may be possible to improve your credit report with some quick fixes.
Are you on the electoral register? If you aren’t this can damage your credit score so check, and register if you haven’t already. Also, don’t assume that information on your credit report is correct. Mistakes can happen, and if they do you can apply to have them corrected. Last, but definitely not least, take this chance to ensure that no fraud has occurred. Is there a loan or a credit card application that you don’t recognise? It’s unusual, but identity theft does happen, and if someone has taken out credit in your name it could be damaging your credit score.
Try and increase your deposit
Yes, we know, you’re probably tired of hearing commentators telling you to skip your take-out coffee or take your own lunch to work to save money. The truth is though that a larger deposit can help your chances of securing a mortgage. This is particularly true if you have had financial problems in the past, as lenders will often demand that you put down a larger percentage of the purchase price than buyers with a good credit history.
If you’re thinking of buying your first home, and are under 40, take advantage of the government’s Lifetime ISA scheme, which generates a 25% bonus each tax year on up to £4000 of savings. If you don’t qualify for a Lifetime ISA, at least ensure that any savings you have are in the best place to earn you interest. A potential upside of the cost-of-living increase is an increase in savings account interest rates, so keep an eye out for any changes and take advantage of them.
Organise your paperwork
Problems with mortgage applications can arise for many reasons, including incorrectly completed forms or missing paperwork. If you are already battling against a poor credit history, you want to make the rest of the process go as smoothly as possible. Take some time to get together anything you think you might need such as payslips and bank statements. Knowing what you need can be difficult, which brings us to…
Speak to a bad credit expert
Using a bad credit mortgage service to assist you with getting a mortgage has many advantages. A specialist adverse broker will know what documents lenders want and they’ll make sure forms are filled out accurately and completely, depending on the lender’s adverse criteria. For applicants with a really poor credit history, an expert poor credit mortgage broker can be even more advantageous. This is because:
- Every lender has a slightly different set of criteria when assessing applications. Some may be more tolerant of irregular work patterns; others may consider applications from people with CCJs and more serious defaults
- As the financial landscape and customer’s circumstances changes, lenders’ criteria usually also change too
- Specialist brokers build relationships with the best adverse lenders, with over half of the bad credit mortgages not available directly on the high street, this means that they are in the best position to match your circumstances with the most appropriate lender
While applying for a mortgage via a broker won’t absolutely guarantee success, it can certainly improve your chances. We are living 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 have concerns about the impact of your credit score, there are things you can do. You don’t have to give up on your dream.