Bad / Adverse Credit
Bad credit can come from a number of things. Late payments can be a form of bad credit, as are defaults, CCJs and debt arrangements. Clients don’t always realise they have bad credit – and this doesn’t affect them until they are applying for a credit card, a loan or, more importantly, a mortgage.
A lot of First Time Buyers can have a low credit score without bad credit. It doesn’t mean that something’s gone wrong, it just means you’ve not taken any credit – so it’s difficult for a lender to know that you can manage money. It can be a good idea to take out a low value credit card before you start thinking about buying a home.
In terms of knowing whether you’ve got bad credit, the main way to find out is with credit reports. Checkmyfile, combines all 4 major credit agencies: Experian, TransUnion, Equifax & Crediva all in one report, which is important when going for a mortgage as each lender will check different credit references and credit agencies.
Manor Holmes has an affiliate relationship with Checkmyfile, where you can get a 30-day free trial.
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Can I get a mortgage with bad credit?
Yes. There’s a number of lenders that are willing to lend in this situation, and actually specialise in this area. It may mean that you need a slightly larger deposit compared to someone that doesn’t have credit issues on their file, but there are options out there for you.
What is a CCJ and what does it mean in getting a mortgage?
A County Court Judgement orders you to pay money back to your creditor. If, for instance, you have a credit card with Barclays, you owe them £1,000 and ignore all their correspondence, a CCJ will be issued against you that goes on your credit file for six years.
In terms of a mortgage, you can get one, but you will need a higher deposit. If a client has had a CCJ registered six months ago, there are mortgage products available, but they are likely to need a 20% deposit.
What is a Default, and will it stop me getting a mortgage?
Most creditors will put your account in ‘default’ after six continuous missed payments. So, if you missed your payment in January, February, March, April, May and June, in June it will be turned into a default. That, again, will stay on your credit file for six years.
It will show up as a D on your credit report. A Checkmyfile report will give you the date that the default was registered, the amount that the default was for, and the date it was satisfied if applicable.
What is an IVA, and can I get a mortgage with one?
An Individual Voluntary Agreement works similarly to bankruptcies. You will need a higher deposit for an IVA. A 25% deposit is the standard. That’s a lot of money, which makes it more difficult for clients with an IVA.
Why are Payday loans a problem on your file?
A lot of clients don’t realise that payday loans are a problem. They’re readily available and widely advertised. No one looks at the small print – specifically the massively high interest rate you pay as it’s a short-term solution.
There are better short-term options out there. You can look at credit cards, an overdraft or perhaps borrowing from a family member. If you’ve taken a payday loan in the last six months, you’re going to have to wait before you can apply for a mortgage.
What are DMPs and arrangements to pay?
A DMP is a Debt Management Plan. An arrangement to pay will be shown in a credit file as an AR.
You might get an AR, if you’ve had difficulty repaying a loan. You call up your provider and they agree an Arrangement to Pay which reduces your payments for a few months. However, what they don’t tend to tell you is that an arrangement to pay will impact your credit score as it’s seen as a late payment.
A debt management plan is where your debt has been taken over by another creditor, and you’ve agreed on a manageable way to repay the money you owe. But again, a DMP will appear on your credit file and be visible to a lender.
How can I improve my credit score?
Make sure that you’re on the electoral roll – that’s really important. It boosts your credit instantly, and also means that should you forget to pay something and move house, there’s a way of tracing you that could prevent you getting a CCJ.