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Can you get a mortgage with bad credit?

Can you get a mortgage with bad credit?
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If your credit score isn’t great, stepping onto the property ladder can feel impossible. But don’t despair. Here’s how to get a mortgage even with a bad credit rating.

Can I really get a mortgage with bad credit?

Yes, you can. It might not be as straightforward as it is for those with good credit, but it is still possible.

So-called bad credit mortgages are also known as adverse credit mortgages or sub-prime mortgages. They’re typically offered by specialist lenders and building societies. In some instances, these types of mortgage deals can only be accessed via a broker, and you may need a guarantor.

That said, most lenders are wise enough not to make sweeping assumptions about bad credit and will consider applications on a case-by-case basis. So don’t be put off approaching your own bank or other high street banks. Lenders will take into account all of the issues related to your credit history. For example, they’ll consider the type of debt, the amount of money involved and how long ago the problems occurred.

However, it’s important to note that formal acknowledgments of bad debt like bankruptcy, CCJs and IVAs can worsen a poor credit record.

What mortgage deals can you get with bad credit?  

If your credit rating isn’t great, the first thing you’ll need to do is stump up a decent deposit. How much exactly will vary depending on the lender, but expect to need at least 20%-30% of the property value (compared to 10%-15% for those with good credit).

The second thing you’ll need to contend with is the interest rate. Currently, some of the best rates for first-time buyers with a 10% deposit and an impeccable credit history range from between 2.65% and 3.05%. Interest rates for the overall cost of the loan (APRC) range from 2.8% to 4.5%.

In contrast, the most competitive bad credit mortgages require a 30% deposit with an initial discounted interest rate of 2.99% and an APRC of 5.8%.

How do I get a mortgage with bad credit?

If you want a mortgage but have a less than rosy credit history, it’s important to know there are no quick fixes. As well as saving for a deposit and being prepared for a higher interest rate, you’ll need to take steps towards improving your credit rating. You can do this by:

1. Checking your credit history

Lenders check your history with a credit reference agency (CRA), so it’s a good idea to make sure the information about you is correct. Even little mistakes – like a typo in your name or address – could make a difference. You can check your score for free at each of the three main CRAs in the UK: Experian, Equifax and TransUnion.

2. Finding out if you’re financially linked 

If you’ve taken out a joint account or loan with another person, you become financially linked. If that person has a bad credit history, it’ll rub off on you, too. However, if you no longer have a joint account or loan with them, you can ask each CRA to remove that person’s name from your credit report.

3. Paying bills on time

It’s an obvious one, but showing you can pay all of your bills on time (utilities, phone and broadband) helps reassure lenders that you can manage your money.

4. Adding yourself to the electoral roll

This is simply a list of everyone eligible to vote. Adding yourself to the electoral roll proves you are who you say you are. It’s a quick and easy way to improve your credit score. You can register to vote on the website.

5. Paying off debts

Lenders are less likely to loan money if you have lots of debts already. So an action plan to start minimising what you owe is a good start. For advice, take a look at our guide to getting out of debt. It’s also worth thinking about consolidating your debt.

6. Staying in one place

Moving home a lot can ring alarm bells. Lenders generally prefer it if you appear settled and have been at one address for a while.

7. Minimising credit use

If you have access to credit, try not to max it out. Lenders prefer to see you use just 25% or less of your available credit. For example, if your credit card limit is £3,000, try to spend no more than £750 of it. This is known as your credit utilisation.

You can do it

If you’ve got bad credit, it can feel frustrating. But you can take action to help you improve your credit score and boost your chances of getting a mortgage.

Paying credit card interest? Time to switch to a 0% balance transfer card.

If you can’t afford to clear your credit card balance at the moment and are paying monthly interest, then check to see if you can shift that debt to a new credit card with a long 0% interest free balance transfer period. It could save you money.

By transferring the balance of any existing card (or cards) to a new 0% card, you could be debt-free more quickly – since your repayments will go entirely towards clearing the balance of the debt you owe, and not on interest charges.

Discover our top-rated picks for 0% balance transfer credit cards here and check your eligibility before you apply in just a few minutes – it’s free and won’t affect your credit score.

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