Poor Credit Mortgages

The term ‘poor credit’ is used to describe a history of failures to keep up with payments on your credit agreements. This reduces your credit score, which is a figure that represents your creditworthiness as a borrower. Having a poor credit history and low credit score makes it more difficult to obtain credit in the future from mainstream lenders, including when you apply for a mortgage.

What causes a poor credit score?

There are a variety of factors that can influence your credit score. This includes:

• Late or missed payments
• A charge off
• Collection accounts
• Filing for bankruptcy
• Foreclosures
• Court judgements

Can you obtain a mortgage with poor credit?

It is possible to obtain a mortgage when you have poor credit, but it may not be from a mainstream lender. There is likely to be higher interest rates and a larger deposit required. This is because having a low credit score means you are a higher risk to the lender.

When you apply for your mortgage, the lenders will check your credit history. They’ll review your income and your outgoings, as well as any savings you have. They are looking at your ability to pay the monthly mortgage payments, both now and if interest rates increase.

How can you improve your credit score and your chance of getting a mortgage?

• Build your credit history by using a credit card little and often. This shows that you are reliable as you repay the money that you borrow.
• Keep your credit use low by not using all or more than your allocated credit limit.
• Rectify any errors that may appear on your credit report. This can include registering on the electoral roll.
• Avoid making too many credit applications over a short space of time.
• Pay your bills on time. Late payments suggest poor money management and will make a lender doubtful that you will repay your mortgage payments on time.
• Review your spending – spend less where you can and try to make sure your monthly outgoings are consistent. Where you spend less, use this to add to your deposit. A higher deposit means more favourable interest rates.
• Make sure you have a large enough deposit for the property you want to buy. For a poor credit mortgage, this will need to be at least 10% of the property price, and in some cases as high as 25%. The chances are if you apply for a poor credit mortgage with a low deposit, your application will not be successful.