When you apply for a mortgage for a new house, banks and building societies will check a wide range of factors from the house that is being purchased, whether there are any odd circumstances to the purchase, as well as the credit history of the borrower.
This typically involves checking your credit rating, which weighs your borrowing history, amount of debt relative to earning, with each financial institution giving these factors a different weighting.
Because of this, a poor credit mortgage may be available to some people with a low credit score and not to others. Many institutions look at the particular details as they know a rating does not show the true nature of a person’s riskiness or viability.
Typically there are four main types of bad credit, which are displayed below in order of their effect on a person’s chances of getting a mortgage:
- Defaulting – missing a payment or failing to pay on time can be marked on your record as defaulting, but lenders are aware of the difference between missing a phone bill payment and missing a major repayment or repeatedly missing payments.
If you can prove that a missed payment was not indicative of your financial management it is less likely to matter.
- Individual Voluntary Arrangements – debt management plans or IVAs are an arrangement with a creditor to pay a limited amount towards your debt over the long term, but they will be recorded as a series of defaults, affecting access to some mortgages.
- County Court Judgements – A court order that requires you to pay back someone you owe if you fail to do so otherwise, a CCJ will remain a blight on your credit score, but how much it will affect your mortgage depends on the amount ordered against you.
A smaller CCJ has less of a bearing than one over £1,000, for instance, and if you have fully paid it back, even some high street lenders may accept you with a CCJ on your record.
- Bankruptcy – The final option for people in deep debt, it is often the biggest barrier between people with a poor credit history and a mortgage.
Some specialist lenders may consider people with a discharged bankruptcy that took place several years ago, particularly if you can explain the circumstances that led to the bankruptcy in the first place.
