Subbie Tip #13 – How A Poor Credit Score Affects Your Mortgage Applications

It’s important to say right from the start that you should not assume that having a less than perfect credit record will stop you getting a mortgage.  That isn’t to say that lenders welcome those with adverse credit with open arms but nor will they necessarily hold it against you.

So, what is adverse credit?  This is a broad term used to refer to any ‘mark; on your credit file entered as a result of a missed or late payment.  This can be everything from a simple late payment to defaulting on a credit account or arrangement to pay, a debt management plan (DMP) or up to a County Court Judgement (CCJ).

Whenever you agree any financial contract (e.g. take out a credit card, a mobile phone contract or a payment on account arrangement such as that for utility bills) the creditor will make a report each month to three credit reference agencies; Experian, Equifax and Call Credit.  The report will reflect the status of your payments and whether they were made on time.  If you don’t make a payment during the month in which it’s due, the finance company will record a ‘late payment’ for that month and mark the first one as ‘1’.  If you go on to miss more payments in a row, the end number increases each month to ‘2’, ‘3’ and so on.  If you miss six payments in a row the creditor will record this as a defaulted payment and will normally pass your file to a debt collection agency.

In some circumstances a default can end up being dealt with by the County Court to help recover money owed by you; this would be registered as a County Court Judgement (CCJ) on your credit file under the ‘Public Records’ section.  It is important to note that a CCJ can be registered by anyone you own money to.

So how does all of this affect your mortgage application?  The hard truth is that typical high street lenders are unlikely to agree to lend if you have recent adverse credit; i.e. any instances within the previous two years (24 months).  Lenders may be more flexible about previous adverse credit outside this period, particularly if the debt has subsequently been paid in full, however, they may still ask for a larger deposit than usual (this could be anything from 15 to 40%).

There are some ‘debts’ that are treated differently; for example, if you default with a mobile phone provider and the debit is under £500 some lenders will be sympathetic or, in some cases, even have a policy of ignoring this type of debt; both because the phone contractors tend to throw out default notices like ‘confetti’ and because they are nigh on impossible to challenge.

Fortunately, there are also a number of banks and building societies that I can access who will not only base their affordability calculations on your Gross CIS Income but will also consider a range of credit issues and be prepared to disregard defaults and even CCJs if they were initially registered over two years (24 months) ago. 

The important thing is to be prepared to explain any adverse credit and the first, most important step, is to know exactly what a prospective lender will see when they check your credit file.  I recommend using a service such as checkmyfile.com where you will be able to see can see all data reported to all three credit reference agencies mentioned above.

If you find any adverse credit on your record; write down why this happened and the exact circumstances (many of the lenders I access will be understanding if you were experience personal trauma or going through a difficult period).  It is also, of course, important to go on to explain what has changed and how you are back in control of your finances (this will, naturally, also need to be reflected in your more recent credit history).

The final thing to say is that it can be quite daunting trying to understand the information presented on your credit report and score; as a seasoned professional, I’m always happy to look over your file and help you make more sense of it.  For more advice on this topic or to find the right lender for you, give me a call on 08000 306705 or drop me an email to: david@cismortgage.co.uk

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE