Will a low/no credit rating affect my odds of obtaining a mortgage?
People today fear it may be hard to get a good mortgage rate while they have a decent credit rating – but what exactly do you do in case you do not have this? If you are in this position and you are asking yourself ,”How can I get a mortgage if I have a low or no credit score? then you have come to the right place. We have gathered together here all of the information that you will need to enable you to accomplish your dream of home ownership.:
- 1. I have never had credit before. Does this help?
- 2. Just how will this affect you?
- 3. A word of caution
- 4. The next step ?
- 5. Dealing with the fundamentals/basics
- 6. Fixing any problems
- 7. Start to build a good credit history
- 8. How Finbud brokers can help you?
As simple as it may sound, it is likely you will still need some more detailed advice into each area, so read on for more information.
I have never had credit before. Does this help?
You may feel that never having had credit in the past or whenever you had some minor credit, which you have paid down as agreed – then you are in a solid position when comes to applying to a mortgage. Now you don’t have any black marks, or red flags showing up on your credit report. However the terrible thing here is that you are potentially in no better a position than if you had a chequered credit history, and you can possibly be worse off.
The main reason that lenders search for a pattern of behaviour is because it forms part of their underwriting process which helps them make a lending decision. If there is no pattern of behaviour then they may deem you an unknown quantity. Hence, they could see you as a risk as there is no previous evidence that you can manage your finances.
We all know that sounds unfair, but you need to understand how it all work to give you an even playing field.
Just how will this affect you?
I’ve mentioned you might possibly be viewed as a greater risk when you’ve got a very low credit history. Let us think about the possible effects of this when applying a mortgage.
- The lender declines you a mortgage.
- The lender requests you put down a larger deposit – they truly are not well prepared to provide you as much as you desire to borrow, however they do make an offer for a lesser loan amount, leaving you the issue of up the coming up with extra money.
- The lender higher fees – limited choice may lead to you to having pay out a larger fee. This may be an issue if you cannot come up with the extra money and they will not allow you to add the fee to the mortgage
- The lender charges a higher interest rate – this is to reflect the increased risk of lending money to you
You may find this disheartening. It could feel as if you are being punished, sometimes for no reason other than that you are just starting out and have to establish yourself.
Sometimes you may feel that you have to swallow their unfair decision because you cannot raise a larger deposit or have to wait it out until adverse credit event drops off your credit fail which can take up to six years
However sometimes you will be able to take action to turn things around and we are going to review some of these things for you.
A word of caution
Whatever you do, resist the need to apply to several mortgage lenders, in the hope that one will approve your mortgage To begin with, you likely only get access to mainstream lender, who may not be the right fit and tend to be least flexible when it comes to those who have a low or no credit rating. The only thing you may achieve by applying to one lender after another is a host of rejections and a record of credit applications on your credit report which can do more harm than good.
Are you wondering, what is the best way to proceed? Get in contact with our expert advisors to learn more, or continue reading our step by step guide on how to find a mortgage with no/low Credit Score.
The next step ?
As we have explained, if you have got a credit score with a minimal score, or even no credit rating to speak of, then you will want to approach obtaining a montage virtually the same way. The most Important thing You need to do is establish a reasonable credit record, and we have broken down some of the activities you can consider into 3 phases:
- Phase 1: Dealing with the fundamentals/basics
- Phase 2: Fixing any problems
- Phase 3: Start to build a good credit history
We’ve broken things down further and will explain each individual step you need to take within each phase, to make it all as simple as possible.
Dealing with the fundamentals/basics
There are a number of things you can accomplish which can be pretty basic. All these are good practice for everybody, regardless of what their credit status. Think about these as being basic housekeeping duties, and also get in the practice of accomplishing regularly, perhaps every year.
The following 3 measures are:
- 1. Get enrolled to the electoral registerPretty simple to do and yet can make a big difference. When a lender assesses an application for credit they are on the lookout for 2 main things. They wish to be certain who they are lending money to, plus they would like to know the way you manage your own money. This falls into the first area.
- 2. Request a copy of your credit reportThere are 3 primary credit reference agencies in the UK: Call credit, Experian and Equifax. They all hold details about you personally, and may even hold different information about you. As a result of this, you should request a copy of your credit from each of the three main credit agencies and check if the information they hold on you is accurateIncidentally, if you assess your own credit-report it will not register in precisely the exact manner when compared to a potential lender checking it. So need to worry, you can check your own credit report as many times as you like and it will not have any affect.
- 3. Correct any mistakes on your credit recordIf you discover any errors in your credit file, then get in touch with the relevant credit agency and ask them to correct or amend them. This may take a couple of weeks, however it’s crucial that the information creditors access about you is correct – as any mistake might make the difference between a ‘yes’ and a ‘no’.Make certain the changes have been made, give it a couple of weeks then request a second copy of your credit file and inspect it to see that the changes have been made accordingly.
Fixing any problems
At this stage, what you are left with on your credit report are good and possibly bad entries. The good entries obviously are not an issue, but anything that can be classed as an bad credit event potentially is. In some cases, it is something that you can do something about. Some things may help now, and everything can help in the future – the longer ago something happened, the less impact it generally has.
Make sure your payments are up to date
For those who have some outstanding obligations, where possible try to get them up to date. If you have the habit of waiting for the “red letter” In the event that you wait for the ‘red letter’ before you pay a specific bill, try to remove this habit and try to pay as soon as you receive the bill. Do not allow a poor habit ruin your odds to obtaining a mortgage.
Settle any outstanding debts
Do you have any old outstanding debts? Then it might be good idea for pay them off where possible. Whether it CCJ or default or something different, it may help to make it up to date. It is going to disappear from your record in six years, and also the longer ago it happened, the less impact it is going to have, however some lenders are very likely to be more favourable towards older, settled debt compared to older debt that’s still outstanding.
Start to build a good credit history
As a way to prove that you will handle your accounts in a responsible manner you will need to have a few accounts to begin with. That usually means you need to gain access to some type of credit . If you have a mobile phone on a monthly contract, then this should help but not as much having a loan from major high street bank
- Step 1. Obtain a Bank CardWhilst we do not recommend getting yourself into debt, having a credit card could be a handy way to gaining a record of regular payments on your credit report.If you are beginning to establish a credit history from scratch, you then need to have significantly more options in regards to applying to get the one. For those who have a low credit rating and a list of debt problems, you might have to make an application for a ‘bad debt’ credit card.No matter what type card you get, you should not allow debt to build upon it. Put it to use towards your own supermarket spending or fuel, even on the occasional treat, but pay it off in full every month whenever possible. The purpose of the exercise will be to show a regular pattern of spending – borrowing and obligations – demonstrating you are able to deal with your hard earned money. In the event that you let a balance build up, it will have opposite impact.
- Step 2. Take a loan out As previously mentioned, in the event that you’re able to borrow money and repay it back as agreed can demonstrate an optimistic pattern of behaviour on your own credit file.One significant caveat here is that you should not, if you’re able to avoid it take a pay day loan advance. As opposed to helping reveal a more confident pattern of behaviour, they may indicate you cannot live within your own means. Even in the event that you pay it off at full, as agreed, they are able to damage your credit score ranking in the view of a mortgage lender. Many major lender will decline your mortgage application outright, if you have had a payday loan in the last 12 months.
- Step 3. Cut Your debtThis could seem to contradict what was just said above, however we’re talking about historical debt . Say you own a bank card that’s up to this limit and has been for weeks; start to pay that off as soon as possible. Cut it up, if it can help, which means you can’t spend on it again, but try to reduce the total amount and try not stay near the card’s limit. Periodic payments, made on time, and a decline in the overall level of debt is what you should be aiming to achieve.
- Step 4. Keep on top of all of your paymentsMake an effort in order to prevent having any missed or late payments showing up in your own credit report. The point is to construct a fresh credit profile also, as items stick to your credit rating for six years , you have to keep an eye on things today to avoid ending up being in precisely the exact same spot later on. An excellent trick here would be to establish a direct debit to guarantee you do not forget to make this minimum payment in time. Just be certain that when payment is due, you will have sufficient money in your accounts. Paying that minimum payment promptly on time will make it certain that a missed or late payment will not show up in your own credit record.
How Finbud brokers can help you?
you are struggling to find a mortgage because you have no or a low credit score, or you are simply not sure what direction to go next, get in touch because we would love to help you. We’ve got a specialist group of mortgage brokers who have experience of working together with people who have a low or no credit score, plus several specialist lenders from across the mortgage market – we can get rates you almost certainly cannot. Contact us today to get free initial help and advice.
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