How credit ‘ups and downs’ can keep you from getting a mortgage, and what to do
- Credit “signals” are the result of late payments or the use of unarranged overdrafts
- They can stay in your file for up to six years, even if they were paid
- However, there are ways to get around the problem and still get a mortgage.
A third of adults in the UK have experienced a credit problem on their file, and this could put them at a disadvantage when applying for a mortgage.
A credit problem is negative information on your report and can occur due to incidents such as a lost credit card or utility payment, or an unresolved overdraft.
And it’s not always the borrower’s fault. Kelly Richardson, 38, told us how a clerical error by a water company led to her failure to pay a bill, after which she found it nearly impossible to obtain a mortgage.
Only half of mortgage applicants know their credit history before applying, according to Together Mortgage Finance, a lender that specializes in loans for people with blemished credit.
Black mark: Credit lapses can happen from a missed bill or credit card payment, and they stay on your file for years
Lenders assess the creditworthiness of mortgage applicants to gauge the risk they pose, and the presence of a flaw in your file may indicate a higher likelihood of defaulting on your loan.
As a result, having a mark on your credit history is likely to affect the interest rate you are offered.
In fact, nearly half (45 percent) of younger mortgage applicants (those ages 18 to 34) have had a credit problem when applying for a mortgage with a high street bank or a mortgage credit company. This falls to 16 percent of applicants age 55 and older.
‘The water company’s clerical error destroyed my credit rating’
Kelly Richardson, 38, struggled to obtain a mortgage from major lenders due to a credit problem that was not her fault.
Kelly Richardson, 38, had been saving for years to buy her own home. After years of renting, she was able to put together a deposit of her own money and a financial gift of £9,000 from her father.
However, years earlier and unknown to her, Kelly had been given a mark on her credit file due to a county court judgment due to non-payment of the water bill, to the value of £ 706.
This was not their fault, but rather a clerical error with the missing invoice being sent to the wrong address.
However, the result was that he struggled for months to approach major lenders for a mortgage only to be turned down despite having the funds.
The CCJ was tied to the rental property Kelly moved out of in 2020 when their relationship ended, and this was placed on her record in early 2021.
She says, “I moved into a new rental property, but the water company never connected the dots, so I didn’t see a final payment missing.” It was truly devastating to find out as it completely wiped out my credit rating, which I was later told would severely affect my ability to get a mortgage via High Street.
Eventually, Kelly found Together. The lender was able to offer you a loan of £126,000 on a 5-year fixed product at a rate of 6.69 per cent for a term of 31 years.
Together’s Scott Clay said: ‘Prospective homeowners across the UK are being locked out of the conventional mortgage market, simply because they have a bad credit score of less than a few hundred pounds.
“Banks and other high street lenders often rigidly adhere to strict criteria and automated processes when deciding to approve a mortgage application, and credit failures, even if historical and caused by debt that has been paid off, They can easily lead to rejection.
“It is clear that the UK’s prime mortgage system is not adapting to the current economic climate to meet the needs of consumers.
Clay adds that as a specialty lender, Together can take the position of one more applicant in the round, looking at current and future financial conditions.
What is a County Court Judgment?
A county court judgment is another reason a mark may appear on your credit file.
A service provider, such as a utility company, can request a County Court Judgment (CCJ) if they owe you money and believe you will not pay.
If the court agrees with the company, a notice will be sent to you to repay the funds. At this point, if you do not challenge the sentence, you can pay in one lump sum or in installments.
If you do not comply with the order, the creditor can take other steps, such as seize your property to pay the debt.
Having a CCJ on your report will hurt your credit score and your ability to get a loan, credit card, or even a bank account.
You can also be verified by leasing agents or potential employers.
Credit problems, like a CCJ, stay on your file for six years, affecting your ability to get financing, even if paid off in that time.
And it’s not just credit bureaus and lenders who can see the mark. For a small fee anyone can take a look at the Registry of Judgments, Orders and Fines, although it will not show who is owed the money.
Tips for getting a mortgage with bad credit
Seek the guidance of a mortgage broker: They can help you understand your financial circumstances and recommend the best lender for you.
Take an in-depth look at your credit score: You can securely obtain your credit report from reputable agencies such as Experian, Equifax, or TransUnion to check for discrepancies or unpaid bills. If you spot unfamiliar items, check with the supplier directly and settle any outstanding debts.
Find a lender to help you navigate your specific circumstances: It is crucial to explore all options and work with professionals who understand your individual situation. Specialty lenders are an option and can offer flexibility in considering credit problems.
Remember, there is hope beyond flashes, and home ownership remains within arm’s reach with the right approach.
NAVIGATE THE MORTGAGE MAZE