It’s a bold claim, but bad credit mortgages may not be real… At least, in the sense, you’re thinking of. The problem is, the term has been thrown around so much that it’s sort of become commonplace. And, as it’s been spread around the internet, it’s confusing to know if there is an actual thing as a ‘bad credit mortgage’. Well, Zing is here to investigate.
In this post, we’re going to look at what a bad credit mortgage actually is. Most will know that credit scores and mortgages are closely interlinked, but is there specifically a mortgage for bad credit? We break down everything, right here. So, if you’re looking to learn more about bad credit mortgages, you’re in the right place.
Let’s get into it.
To tell the truth, there is not really such a thing as a bad credit mortgage. Because the term is subjective. Yes, there are mortgages for those with bad credit, but there is not an actual financial product called ‘a bad credit mortgage’. Whilst it may be difficult to get a mortgage and your options somewhat limited with bad credit, it’s not completely hopeless. It takes a lot of searching and possible rejection, but it’s not entirely impossible.
It’s because your credit score establishes you as a borrower and in simple terms, shows whether or not you’re reliable and if you’re any good at making repayments. Whilst you may think you are, your credit might tell a different story. It’s a digitised history of forms of credit you’ve taken out, and how good you’ve been at keeping on top of them and the repayments. Whether it’s credit cards, loans or other financial commitments (bills), they all affect how your credit score is made up. Now, if your credit isn’t great, and you want a mortgage, it’s more than likely that one of two things will happen.
The way lenders work out the interest rate they will offer you is mainly dependant on the risk they see you as a borrower. If you have poor credit, you will be seen as a higher risk. Simply because you have not demonstrated, with past commitments, that you have been reliable with keeping up your repayments. Due to you being categorised as a higher risk, the interest rate the lender will offer you will be higher to match the risk they decide you pose.
Although there are a lot of lenders in the market for offering mortgages to individuals with bad credit, a lot of the high street lenders are in the position and have the funds to be able to cherry-pick their cases and as such, will just not offer those with a lower credit score a mortgage. It’s just not their cup of tea.
Whilst there is a 3rd option, one we’ve gone in depth about before, we’ll talk about this again a little further down. You may be wondering what’s caused your credit to be poor. Well, we explain in the section, below.
There’s no single answer for bad credit. It can be due to late repayments, fraud, being financially linked to someone else with poor credit or even debt. The key thing to know is that it’s important to frequently check your credit score and report. Frequently checking helps you quickly flag up any errors or cases of fraud on your profile. It can be a real detriment to your credit score, but if spotted and dealt with quickly, credit agencies should be able to correct the information on the report. Whilst bad credit is, well, bad, no credit is considered just as bad (wonder how many times we used the word ‘bad’ in this blog…)
Non-existent credit is equally as frowned upon, as lenders have no way of establishing your ability to pay back. If you have never had a loan, credit card or regular commitment to pay, lenders have no way payment history to refer to. With bad or no credit, there’s a couple of things you can do to get yourself a mortgage. The first is to work on improving your credit – this is a long term option, but having a better credit score makes you far more appealing as a potential borrower to a wider range of mortgage lenders. Secondly, you could look into guarantor mortgages…
We’ve done a whole post on Guarantor Mortgages, but we don’t mind going over it quickly again.
Getting a guarantor mortgage is a little different. Firstly, you don’t need to rely solely on your credit score to have your mortgage approved. In fact, if your income or deposit is low, then guarantor mortgages can cover you too! All you need is a guarantor to back up your mortgage application. They’ll agree that if you’re unable to make repayments on the loan, they will pay them for you. Lenders will require your parents or grandparents to be guarantors for the loan (most of the time), however, it’s certain that they will need a good credit score, an income and to own their own home. For more info on guarantor mortgages, click to the blog link above.
We’ve only gone and done it again… Yes, we’ve also written a full blog on improving your credit! But, because we’re nice, we’ll explain a little bit of it here.
It can be a long road to improve your credit, but it’s not an impossible journey. If guarantor mortgages don’t seem like an option for you, to better the chances that you’ll be approved for financial products in the future, it’s time to work on improving your credit score. This can involve clearing debts and checking your credit report for errors. Even registering to vote will give your credit score a small boost! Have a read through our improving credit blog above for more info.
At Zing, we have dedicated advisers and brokers to help you navigate your mortgage application. We’ll look at your credit score among other things and best layout your options for you. If you want to speak to one of the Zing team, get in touch through our Contact page.