23% of mortgage applicants were rejected for a mortgage in 2022 across the UK. Some of these applicants were rejected due to their credit rating, which is an assessment of how individuals have managed their finances and debt repayments over the last six years. If you have a history of missing debt repayments and other money mismanagement events, your credit score can be affected and getting a mortgage can be more difficult. However, there are steps to get a mortgage with bad credit, including several bad credit mortgage options.
How to Get a Mortgage if You Have Bad Credit
What is a good credit score to get a mortgage in the UK?
Creditors and companies can report how you’ve handled finances and debt to credit reference agencies, which keep these events on record for six years (usually) and these events inform a credit score. The higher your score the better, but each credit reference agency can use a different scale to determine what the number means. Thus, there is no universal good credit score.
Experian is one of the most well-known credit reference agencies and uses a score ranging from 0 to 999, although it would be extremely rare to have a credit score at the lowest or highest point. Your score with Experian can be categorised into a very poor credit rating (0-560), poor credit rating (561-720), fair credit rating (721-880), good credit rating (881-960), or excellent credit rating (961+).
There is no magic number that will ensure you get approved for a mortgage – and vice versa. The higher your credit score the greater the chance that your credit score won’t be a contributing factor in a mortgage rejection.
Understanding the impact of bad credit on mortgage applications
Having a poor credit score can have a negative impact on a mortgage application, and it could be a reason why a mortgage application is rejected. Yet, it’s important to remember that your credit report is just one aspect of a mortgage application that is considered.
Some of the events that can cause your credit score to decrease include:
- Not being on the electoral register
- Missing debt repayments, such as loans and credit cards
- Using a formal debt solution, such as an Individual Voluntary Arrangement (IVA) or equivalent
- Declaring bankruptcy
Understand how lenders are screening you
When you apply for a mortgage, lenders will conduct multiple tests to make sure you can afford the mortgage and that you’re likely to repay. Your credit score gives them an idea of how much of a lending risk you are by uncovering how you’ve repaid debts – or failed to – previously. Other ways they will assess you and your risk are:
- Considering your income stability, such as the type of employment contract you have
- Looking at your debt-to-income ratio
- Considering the LTV ratio of the mortgage, which is the size of the loan compared to the value of the property being secured within the credit agreement. In other words, they consider how much of a deposit you can put down.
Assessing my credit situation and exploring my mortgage options with bad credit
You can check your credit score with any credit reference agency, including Experian. If you notice any errors, you must first ask the lender or company that recorded the event to request it be removed.
If you do have a lower-than-average credit score, you can still assess your bad credit mortgage options. There are specific mortgage lenders for bad credit, which have different eligibility requirements. Many people with an unsatisfactory credit score still manage to secure a mortgage because the rest of their application is strong and/or they use one of the bad credit mortgage options.
How can I get a mortgage with bad credit?
Some of the ways to improve your mortgage chances with a poor credit rating include:
- Maintain employment for a long period
- Reduce spending
- Save for a larger deposit, meaning you need a smaller loan
- Consider a guarantor for the mortgage if possible
You may also wish to consider bad credit mortgage brokers. Most qualified advisers can provide bad credit mortgage advice and there are even brokers who specialise in this niche of the market. They could help you access bad credit mortgage options you never knew existed and even trigger mortgage discounts in some cases.
Tips on improving your credit score before applying
If you have bad credit and want to improve your credit score before applying, there are many ways to do this. The best strategies can be tailored to the individual and discussed with your mortgage adviser.
Some of the most common ways to improve a credit score before applying for a mortgage include:
- Avoid applying for any more credit within the six months prior to a mortgage application
- Reduce existing debt. However, this could affect your available deposit and might not be the most suitable strategy for you.
- Don’t use more than 25% of the credit you’ve been approved for on revolving credit such as a credit card. By lowering your credit utilisation ratio, you prove that you don’t rely on credit to meet living expenses.
- Enrol on the electoral roll.
Special advice for first-time homebuyers with bad credit
First-time homebuyers with bad credit may be able to utilise different schemes to help them get on the property ladder. There are often government schemes that help first-time buyers purchase their home with a much smaller deposit. Currently, there is a scheme that allows first-time buyers to get a foot on the ladder with a deposit as low as 5% of the purchase price. Alternatively, first-time buyers with poor credit can maximise their mortgage chances and options by taking the time to save for an even greater deposit than required.
Seeking professional advice
Mortgage brokers often help clients with an unsatisfactory credit rating and manage to find them a suitable mortgage lender. Alike all mortgage brokering services, this requires a personalised approach based on the client’s exact situation and preferences.
Contact our team if you’re anxious that your credit history will affect your mortgage chances. We provide non-judgmental services that are always tailored to your needs.
If you need help with your mortgage, call us today: 0345 450 4660
Make an Appointment
Send a request and we’ll schedule a meeting
