Contrary to popular belief, a poor credit score isn’t the end of the world. Nevertheless, it can complicate the process of accessing a competitive mortgage.
Applying for home loans can be challenging at the best of times, though is an especially daunting prospect for applicants with poor credit.
How does your credit score affect your mortgage application?
These days, lenders generally acknowledge how difficult it can be to maintain a perfect credit score. Hence, the occasional slip-up or oversight on your credit report isn’t likely to make much of a difference. Nevertheless, any signs of significant damage could affect your eligibility, or the overall borrowing costs of the mortgage you’re offered.
Every lender has its own unique policy with regard to poor credit – one of the many reasons why it’s important to shop around.
Can you get a mortgage with no credit history?
If you currently have no credit history whatsoever, you may still qualify for a mortgage. In the absence of anything notable on your credit report, you’ll instead be required to clearly demonstrate your financial position and recent financial history.
Once again, having no credit history whatsoever may mean elevated interest rates and less competitive borrowing costs. The importance of thoroughly comparing the market therefore cannot be overstated.
What’s a subprime mortgage?
A subprime mortgage is a home loan specifically designed for applicants with a poor credit score or no credit history whatsoever. As mentioned above, subprime mortgages are typically offered at higher rates of interest and may also attach higher overall borrowing costs. Nevertheless, they may be the only accessible option if your credit score isn’t up to scratch.
With the average High Street lender, subprime mortgages are out of the question. If you don’t have a relatively strong credit score, your application is unlikely to be considered. Nevertheless, there’s an extensive network of specialist lenders across the UK who provide flexible subprime mortgages for poor-credit applicants.
Even if your application has been turned down by a major lender, you may still be able to secure the funds you need with a specialist subprime mortgage provider.
Does credit card debt affect mortgage eligibility?
In most cases, a modest level of credit card debt will not affect your eligibility for a mortgage. Nevertheless, your current credit card debt may be considered in accordance with your income and general financial status. Should the lender suspect you’re already in more debt than you can handle, they’re unlikely to accept your mortgage application.
By contrast, moderate credit card debt with evidence of consistent repayments and responsible spending could actually improve your credit score. It’s simply a case of demonstrating your commitment to living within your means.
How to improve your credit score
Unless you’re in a hurry, it’s worth taking the time to consider how you can improve your credit score, before submitting a mortgage application. By doing so, you’re more likely to be accepted and could be looking at significantly lower borrowing costs.
Effective methods for improving your credit score include:
- Eliminating as much unnecessary debt as possible
- Ensuring you keep up with monthly payments and never fall into arrears
- Only apply for credit facilities you need
- Consider your eligibility before submitting any application
- If you have no credit history, begin sensibly using a credit card or two
- Speak to your lenders the moment you begin struggling with debt
It takes time and effort to build a strong credit report, but it is ultimately worthwhile.
Whatever your requirements and current financial position, compare the loans market with the help of an independent broker to find your ideal mortgage product.