How to secure a mortgage with a poor credit history

When you apply for a mortgage, lenders undertake a credit check to assess how well you can manage your finances and information will be gathered from lending companies and the public record on how promptly bills are paid and how much debt you are in.

Your credit score will then be assessed on factors such as your account activity, proof of identity and address history, whether you have missed any repayments and whether you are only paying off the minimum amount of interest on your credit card each month.

It is, therefore, a good idea to undertake a free credit check using a credit referencing agency before you apply as this will allow you to check your credit report/history and give you a much greater understanding as to where you stand financially.

When applying for a mortgage when you have a bad credit rating, there is a strong possibility that you will be charged a higher interest rate than you would be if you had an exemplary record, so bear this in mind.

Your borrowing capacity is also going to be greatly impacted so you wil not be able to secure a high loan to value ratio on your mortgage. The result of this is that the deposit you need will be bigger than average.

However, if you have a history of previous credit problems, there are several actions that you can take to improve your score and increase your chances of a mortgage.

A larger deposit will lower the amount of interest you pay, as you’re reducing the level of risk of financial instability in the eyes of the lender. Therefore, if you are able to secure a higher deposit, you are more likely to be accepted for a mortgage at a more manageable budget.

Lenders will naturally opt for applicants who can prove that they use and maintain debt facilities correctly, as this provides them with a clear track record of consistent debt repayment and responsible credit usage. It may sound obvious, but make sure you’re meeting all your payments on any current credit agreements that you may have, clearing the balance whenever you can.

You can also be penalised if you never or rarely apply for credit, so if you do use a credit card, do so in a responsible way. On the other hand, if you have lots of available credit and you don’t use it, get rid of it.

Close any unused accounts down, as lenders do not like to see that a large amount of credit is available to you and, lastly, make sure you register on the electoral roll as this will make the credit check much more straightforward as the lender can prove you live where you say you do.

If you have poor credit history, speak to a mortgage adviser about this rather than attempting to navigate the application process yourself. *Andrew Milnes is the business principal at Mortgage Advice Bureau, Bingley, tel: 01274 568832.