As a mortgage broker, I meet many people with all sorts of requirements and concerns. One very common question I come across is regarding the importance of credit scores and particularly around past bad debts and financial difficulties. This Blog covers the main considerations regarding your credit score when applying for a new mortgage:
The thing to remember is that credit score weighs heavily in the minds of potential lenders. There are three aspects of credit history that most lenders will consider in formulating the risk they are taking on:
- How you have handled debt in the past
- How much total debt you have?
- Your payment record
Having said that, lenders will not use the credit score alone to determine if you can borrow. Hitting hard financial times is very common these days which means that most lenders will review your personal circumstances. In addition, lenders will look back into payment history only for the last 18 months. This means there are many things you can do to repair the damage. Here are a few examples:
- Get rid of any unused credit or retail store cards which have been sitting idle
- Close unused direct debits and mobile contracts
- Check your credit report to ensure that the information on it is accurate
- Disassociate yourself financially from your ex-partner if they had bad debt
- Don’t miss or make late payments
- Make arrangement to pay off your debt
What about a CCJ then? A CCJ happens when a creditor you’ve failed to pay a bill to goes to the County Court to get the funds. Depending on what the judge decides, if you settle the requirement within a month you will not have a CCJ recorded against you, however if you don’t it will remain on record for 6 years. If you have had a CCJ, lenders are likely to consider you to be an increased risk for lending. This does not mean that they will refuse to give you a mortgage but rather that you don’t get offered the best rates on the market.
If your finances have been in bad shape in the past, the last thing you want is to end up in a worse situation by choosing a poor re-mortgage deal. On the other hand, if you can get a deal you can afford, it can help to start building up your credit rating again. keep in mind that you will be more attractive to lenders since you have a credit history versus someone who has never needed credit or has been very hesitant to borrow.
Ultimately, lenders are looking at the whole picture and how much of a risk you pose to them. Seek advice of a professional re-mortgage to make sure you are presenting your credit history in the best way possible.
I am always happy to review your specific circumstances so get in touch if you need some advice.
Your property may be repossessed if you do not keep up repayments on your mortgage.