Having bad credit does not always mean you cannot get a mortgage.
However, it can make getting one more difficult.
Some lenders may decline your application. Others may still consider you.
Much depends on what happened, how serious it was and how long ago it happened.
Therefore, it is important to understand your credit history before applying.
What Does Bad Credit Mean?
Bad credit is a general term.
It can describe many different credit problems.
For example, your credit history may show:
- missed payments
- late payments
- defaults
- heavy use of credit
- debt arrangements
- court action for unpaid debts
- bankruptcy or another form of insolvency
However, these problems are not all treated in the same way.
A missed payment several years ago may be viewed differently from a recent default.
Therefore, the details matter.
Can I Get a Mortgage with Bad Credit?
Possibly.
There is no single rule that applies to every lender.
Instead, each lender has its own lending rules.
One lender may decline your application. However, another may be willing to consider it.
The lender will also look at your wider finances.
For example, it may consider your:
Income
Deposit
Debts
Regular spending
Credit history
Mortgage amount
Therefore, bad credit is only one part of the decision.
What Credit Problems Can Affect a Mortgage?
Many types of credit problems can affect an application.
For example:
- missed payments
- defaults
- court judgments
- debt management plans
- IVAs in parts of the UK
- Trust Deeds in Scotland
- bankruptcy or sequestration
However, the effect will depend on the lender.
Also, older problems may be treated differently from recent ones.
Do Missed Payments Matter?
They can.
A missed payment may appear on your credit report.
However, one missed payment does not always mean you cannot get a mortgage.
The lender may look at:
- when it happened
- how much was owed
- how many payments were missed
- the type of credit involved
- whether the account is now up to date
Therefore, the full history is important.
Do Late Payments Matter?
Late payments can also affect a mortgage application.
However, their effect can vary.
For example, a lender may take a different view of one old late payment than several recent ones.
Therefore, do not assume that every late payment will have the same effect.
What Is a Default?
A default can happen when a credit agreement has fallen seriously behind.
It may then appear on your credit report.
A default can make getting a mortgage more difficult.
However, this does not always mean you cannot get one.
For example, a lender may consider:
When the default happened
How much was owed
Whether it has been paid
What type of debt it involved
Therefore, the age and details of the default can matter.
Does Paying a Default Remove It?
Paying a default does not normally remove the record straight away.
Instead, your credit report may show that the debt has been paid or settled.
This can still be useful information for a lender.
However, lenders have different rules about settled and unpaid defaults.
Therefore, paying a default does not guarantee mortgage approval.
What About Court Judgments?
Court action for unpaid debts can also affect your mortgage options.
The legal terms differ across the UK.
For example, County Court Judgments (CCJs) apply in England and Wales.
Scotland has a different court and debt system.
If you have had court action over a debt, a lender may want to know more about it.
Again, the amount and age of the debt can matter.
What About a Debt Management Plan?
A Debt Management Plan is an arrangement for repaying certain debts at an affordable rate.
Being on a plan can affect your mortgage options.
However, lender rules vary.
Some lenders may not consider an application while the plan is active.
Others may have different rules.
Therefore, it can be useful to get advice before applying.
What About an IVA?
An Individual Voluntary Arrangement (IVA) is a formal debt solution used in England, Wales and Northern Ireland.
It does not apply in the same way in Scotland.
An IVA can affect your ability to get a mortgage.
For example, some lenders may require the IVA to have ended before they will consider an application.
They may also want a certain amount of time to have passed.
Therefore, lender choice can be more limited.
What About a Trust Deed in Scotland?
A Protected Trust Deed is a formal debt solution available in Scotland.
It can affect your ability to borrow.
Therefore, getting a mortgage during or after a Trust Deed may be more difficult.
However, this does not always mean a mortgage will be impossible forever.
The lender may consider how long ago the Trust Deed ended.
It may also look at your credit history since then.
What About Bankruptcy?
Bankruptcy can have a major effect on your credit history.
In Scotland, bankruptcy is also known as sequestration.
Getting a mortgage during bankruptcy will normally be very difficult.
However, mortgage options may improve after you have been discharged and more time has passed.
The lender may also look at how you have managed your finances since then.
Therefore, previous bankruptcy does not always prevent you from getting a mortgage in the future.
Does the Age of Bad Credit Matter?
Often, yes.
A recent credit problem may cause more concern than an older one.
For example, compare:
A missed payment last month
with
A missed payment several years ago
The older problem may have less effect, especially if your finances have been well managed since then.
However, lenders have different rules.
Therefore, there is no set period that guarantees acceptance.
Does the Amount Matter?
It can.
For example, a small old default may be treated differently from a large recent debt.
However, the amount is not the only factor.
The lender may also look at:
When it happened
Why it happened
Whether it has been paid
Your credit history since then
Therefore, the lender will usually look at the wider picture.
Does the Type of Debt Matter?
It can.
Lenders may treat different credit problems in different ways.
For example, problems linked to a mortgage may be viewed differently from problems with another type of account.
Therefore, do not assume that all defaults or missed payments are treated equally.
Can I Get a Mortgage After Missing Mortgage Payments?
Possibly.
However, missed mortgage payments can be important to a new lender.
This is because they relate directly to previous housing debt.
The lender may look at how recent the missed payments were.
It may also look at whether your mortgage is now up to date.
Therefore, your options will depend on your full circumstances.
What If My Bad Credit Was Caused by a Difficult Period?
Credit problems can happen for many reasons.
For example, you may have experienced:
- loss of income
- redundancy
- relationship changes
- unexpected household costs
- business problems
The lender may ask about the circumstances.
However, an explanation does not remove accurate information from your credit report.
The lender will still apply its lending rules.
Does My Credit Score Matter?
Your credit history matters.
However, the score shown by a credit reference agency does not decide whether you can get a mortgage.
There are three main UK credit reference agencies:
Experian
Equifax
TransUnion
Each may give you a different score.
Mortgage lenders then use their own systems when assessing applications.
Therefore, there is no single credit score that guarantees mortgage approval.
Check Your Credit Reports
Before applying, check your credit reports.
Importantly, look beyond the headline score.
Check the actual information.
For example, look at your:
- credit accounts
- outstanding balances
- payment history
- defaults
- financial links
- recent credit searches
Also, check that your personal details are correct.
This can help you understand what a lender may see.
What If My Credit Report Is Wrong?
Mistakes can happen.
For example, your report could show an incorrect balance.
Alternatively, an account may not have been updated correctly.
If you find a genuine error, contact the credit reference agency or the company that supplied the information.
Therefore, checking your reports early gives you time to correct problems before applying.
Can I Remove Bad Credit from My Report?
Accurate information cannot normally be removed simply because it makes borrowing more difficult.
However, incorrect information can be challenged.
Therefore, be careful of companies that promise to remove genuine bad credit simply to improve your mortgage chances.
Instead, focus on making sure your credit reports are accurate.
Can I Improve My Credit Before Applying?
You may be able to improve your overall credit position.
However, this usually takes time.
For example, you can:
- make required payments on time
- reduce debts where suitable
- avoid unnecessary credit applications
- keep your address details correct
- check your credit reports
- correct genuine errors
Most importantly, avoid missing further payments where possible.
A period of well-managed finances can help show greater stability.
Should I Pay Off My Debts First?
Sometimes reducing debt can help.
For example, clearing a loan may remove a monthly payment.
However, there may be a trade-off.
Suppose you have:
£20,000 in savings
You could use some of this to clear debt.
However, this would leave you with a smaller mortgage deposit.
Therefore, consider both sides before using savings to repay debts.
Does My Deposit Matter?
Yes.
Your deposit can be particularly important if you have previous credit problems.
Some lenders may require a larger deposit where there is adverse credit.
For example, you may find fewer mortgage options at a high Loan-to-Value.
However, this depends on the lender and your credit history.
Therefore, do not assume there is one deposit level for all bad-credit mortgages.
Could a Larger Deposit Help?
Possibly.
A larger deposit means you need to borrow less.
For example:
Property price: £200,000
Deposit: £40,000
Mortgage: £160,000
This gives an 80% Loan-to-Value (LTV).
A lower LTV may give you access to different mortgage options.
However, a larger deposit does not erase bad credit.
The lender will still check your credit history and affordability.
Are Bad-Credit Mortgages More Expensive?
They can be.
If a lender considers an application to carry more risk, the mortgage may have a higher interest rate.
You may also have fewer products to choose from.
Therefore, compare more than the monthly payment.
Look at the:
Interest rate
Fees
Monthly payment
Early Repayment Charges
Total cost of the deal
This can give you a clearer picture.
What Is an Adverse Credit Mortgage?
You may hear terms such as:
Adverse credit mortgage
Impaired credit mortgage
or
Bad-credit mortgage
These are broad terms used for mortgages aimed at people with previous credit problems.
However, they are not one single type of mortgage.
Different lenders have different rules and products.
Therefore, check the actual mortgage terms rather than relying on the label.
Will I Need a Specialist Lender?
Possibly.
Some high-street lenders may accept certain credit problems.
However, more serious or recent problems may reduce your choices.
In that case, specialist lenders may be another option.
However, specialist mortgages can sometimes cost more.
Therefore, compare the full cost carefully.
Can a Mortgage Broker Help?
A mortgage broker may be useful if you have bad credit.
This is because lenders can have very different rules.
For example, one lender may decline a recent default.
Another may consider it under certain conditions.
Therefore, a broker may be able to identify lenders that are more likely to suit your circumstances.
However, check whether the broker charges a fee.
Also, check which lenders they can consider.
Avoid Making Lots of Mortgage Applications
Applying to several lenders at random may not be a good idea.
Some applications can leave hard searches on your credit report.
Also, several declined applications will not solve the underlying problem.
Therefore, try to understand your options before making a full application.
What If a Lender Declines Me?
A mortgage decline does not mean every lender will decline you.
First, try to understand the reason.
For example, the problem could be:
- your credit history
- affordability
- your income
- your deposit
- the property
- the lender’s own rules
Therefore, do not assume bad credit was the reason unless you know this.
Also, avoid immediately applying to several other lenders.
Can I Get a Mortgage with No Credit History?
Having little credit history is different from having bad credit.
For example, you may never have used a credit card or taken out a loan.
As a result, lenders may have less information about how you manage borrowing.
However, this does not mean you should take out unnecessary debt.
Instead, focus on keeping your financial records clear and accurate.
What About a Joint Mortgage?
If you apply with another person, the lender will normally assess both applicants.
Therefore, one person’s credit history can affect the joint application.
The lender will also look at both incomes and financial commitments.
As a result, adding someone with a good credit history does not simply cancel out another person’s bad credit.
Should I Apply Alone Instead?
Not necessarily.
Applying alone could remove the other person’s income from the affordability check.
Therefore, you may be able to borrow less.
Also, the ownership and mortgage arrangements need to fit your situation.
For this reason, compare the options carefully before deciding.
Can I Remortgage with Bad Credit?
Possibly.
However, your options may be more limited.
If your credit history has changed since you took out your current mortgage, you may not qualify for the same deals as before.
Therefore, check your options before your existing mortgage deal ends.
Also, remember that staying with your current lender may sometimes involve a different process from moving to a new lender.
Can I Get a Mortgage After My Credit Improves?
Possibly.
Credit problems do not necessarily affect your mortgage choices forever.
As time passes, older problems may become less important to some lenders.
Also, your wider finances may improve.
For example, you may:
Reduce your debts
Save a larger deposit
Build a longer record of on-time payments
Therefore, waiting before applying can sometimes improve your options.
Should I Wait Before Applying?
Sometimes this may be sensible.
For example, you may benefit from waiting if:
- a credit problem happened very recently
- you are still missing payments
- your debts are increasing
- you need more time to save a deposit
- there are errors on your credit reports
However, waiting is not always necessary.
Therefore, check your position before deciding.
Be Careful with New Borrowing
If you plan to apply for a mortgage soon, think carefully before taking on more debt.
For example, a new:
- personal loan
- credit card balance
- car finance agreement
could increase your monthly costs.
As a result, it may reduce the amount you can borrow.
Therefore, avoid unnecessary new borrowing where possible.
Keep Your Finances Stable
Before applying, try to keep your finances as stable as possible.
For example:
Make payments on time
Keep debts under control
Avoid unnecessary credit applications
Keep your address details up to date
Build your deposit
These steps cannot guarantee a mortgage.
However, they can help improve your overall position.
Be Honest About Previous Credit Problems
Do not hide debts or previous credit problems from your lender or broker.
The lender may see them during its checks.
Therefore, provide accurate information when asked.
This also allows a broker or lender to assess your options more accurately.
A Simple Example
Suppose you had a default three years ago.
Since then, you have:
Paid the debt
Made your other payments on time
Reduced your borrowing
Saved a 15% deposit
Your old default may still be relevant.
However, the lender will also see what has happened since.
Therefore, your full credit history matters more than one event alone.
Before Applying
It can help to check five areas.
1. Check Your Credit Reports
Look at the information held about you.
Also, correct any genuine errors.
2. Check Your Debts
Know what you owe and how much you pay each month.
3. Check Your Deposit
Work out how much you have available.
Also, keep proof of where it came from.
4. Check Your Budget
Make sure the mortgage payment would be comfortable.
5. Check Your Options
Different lenders have different rules.
Therefore, find out which lenders may suit your credit history before making several applications.
Common Bad-Credit Mortgage Myths
Bad Credit Means I Cannot Get a Mortgage
Not always.
Some lenders may still consider you.
However, your options may be more limited.
I Need a Perfect Credit Score
No.
There is no single credit score that guarantees a mortgage.
Lenders use their own checks.
A Bigger Deposit Removes My Bad Credit
No.
A larger deposit may improve your options.
However, the lender will still check your credit history.
One Lender Declined Me, So They All Will
No.
Different lenders use different rules.
Therefore, another lender may take a different view.
Paying a Default Makes It Disappear
No.
The record may still remain on your credit report for a period.
However, it may show that the debt has been settled.
The Key Point
Having bad credit does not automatically mean you cannot get a mortgage.
However, it may reduce the number of lenders and mortgage deals available to you.
The lender may look at:
What happened
How much was involved
How long ago it happened
Whether the debt has been settled
How you have managed your finances since
Your deposit, income and affordability will also matter.
Therefore, check your credit reports before applying. Also, make sure the information is correct.
Most importantly, avoid making several random mortgage applications.
One lender saying no does not mean every lender will say no.
Your mortgage options will depend on your full financial position and the lending rules in place when you apply.