Various mortgage lenders are out there providing mortgages with bad credit, but many borrowers are struggling to have a lender signed off on their applications. If you have an impaired credit standing, you will likely end up getting a sharp reply, “We are afraid to approve your application as you have a bad credit rating.”
Even though the mortgage industry is promoting mortgages with bad credit, it does not mean that all borrowers can get approval. A poor credit score falls between 521 and 720. Though lenders allow for a mortgage with a high interest rate to mitigate the risk associated, you are likely to be turned down if your score is less than 600.
It means bad credit mortgages are not available for all bad credit borrowers. It varies from lender to lender how much risk they want to bear. Your lender may not be approving applications with less than 700 credit score while your friend’s lender will be turning down applications with less than 650 credit score.
However, it is not just about a credit score. Lenders consider your financial circumstances to make sure that you will not fall behind repayments. The same lender will likely turn down your application despite a better credit score than your friend because your repaying capacity might not be as good as your friend.
If you apply for a guaranteed bad credit mortgage with a broker like Shinemortgages.co.uk, it will be easier to get it approved as they can negotiate and convince the lender on your behalf. Yet, you should try to improve your credit rating. Take one-one counseling from your broker to know how you can do it quickly. Some of the ways are as follows:
Erroneous credit file can lower down the chances of approval
Before signing off on your application, your lender will take into account the three factors:
- Whether you and your spouse – in case of a joint mortgage – have a steady income
- How much of a down payment you can make.
- If you have a solid credit history
Make sure that your credit report does not consist of erroneous information. Your personal details, including address, are correct. It does not have any default that is not in your knowledge. Try to get your credit file from three popular credit reference agencies – Experian, Equifax and TransUnion. You can get it free once a year.
In case, it has information that can damage your credit score, dispute the error. The agency may take maximum 30 days to rectify the mistake.
Close inactive accounts
It is worth closing an account if you are not using it. A lot of unused credit cards can damage your credit rating. It is a good idea to close some of them. Unused credit cards allow for an interpretation that you are a person who does not use credits often and hence it restricts your credit score, worrying lenders about your affordability.
If you have multiple credit cards, try to spread payments across all of them. It will not only prevent you from maxing out one credit card and having several unused cards but also help you that you sensibly borrow and pay off on time.
Note that you should not close your older cards with a good credit history. It does not make a sense to close such accounts as it can give a boost to your credit rating.
Avoid a debt just before taking out a mortgage
You should not apply for a debt in a span of three months before putting in the mortgage application. Some lenders follow a six-month gap. Make sure that you do not have any overdraft for at least the last three months before applying for a mortgage. It implies that you are on the verge of your finances. Some lenders do not tolerate overdrafts at all.
If you apply for a loan, credit card or overdraft, searches will show up on your credit file, indicating that you often rely on debts and hence you may fail to afford your mortgage.
Getting a bad credit mortgage is quite difficult because you will not only pay down it at a high-interest rate but also arrange a high amount of deposit. Despite a large deposit, there is no guarantee of approval. Therefore, you should try to improve your credit rating as much as possible.