Bad Credit Records and your Mortgage

When you apply for a mortgage your credit rating will be checked. The lender uses you credit rating to see how reliable you have been previously in paying off your debts. From the point of view of the lender, they would like to know what risk might be attached to giving you a loan.

The mortgage lender will probably use one of the top two credit references agencies, Experian or Equifax, which hold a range of information about you and have a formula to assess how good – or bad – a credit risk you are.

Any problems you’ve had with paying off debts will be recorded. You are also assessed by address – and indeed, if anyone has lived at your address before with a bad credit record, that will count against you too.

If you have a black mark against your credit history there is not much chance of it being disregarded by the lender. However, if there is an error on your credit record, there is a possibility of getting rid of that. You can get details of your credit file for £2. If you feel the information on your file is incorrect, or you would like to add a note of explanation, Experian and Equifax will add an agreed statement to your file.

Every time you have a credit application turned down, it will be recorded on your credit file, so it’s important not to apply to a host of providers.

If you do have a blemished credit record it is best to look for lenders who provide bad credit mortgages. There are a number of providers who specialise in these mortgages, and they should be able to help. There is little doubt, however, that you will have to pay a higher interest rate for a bad credit mortgage – to cater for the increased risk. These type of mortgages are sometime called adverse credit mortgages, and the whole sector is often referred to as sub-prime.

Although more well known high street brands have got involved in bad credit mortgages in recent years, the problems of the sub-prime sector in the United States, and the credit squeeze that followed has caused all banks to review their lending criteria. The crisis at Northern Rock was a direct result of the credit squeeze as banks refused to lend money to each other, and much of Northern Rock’s business model was based on borrowing money to lend to borrowers for house purchases. Now, banks are much more wary about who they lend to, and the adverse credit sector has taken a beating.

Even making an enquiry about a mortgage can count as a “cross” on your credit record as they may carry out a credit check as part of your enquiry. Once on your credit record, all other lenders can see the check has been made and will treat it with suspicion.

It is best to approach an independent specialist mortgage advisor about bad credit mortgages. These advisors will already know what the best deals around are, and which lenders are most likely to accept your application.