My bank has declined my mortgage application due to a low credit score can you help?
My credit rating is ‘fair’ on Experian can I get a mortgage?
Creditexpert says my credit is ‘poor’ how will that affect my chances of getting a mortgage?
By residential mortgage expert Mr Payam Azadi
Credit scoring is a computerised decision based on the conduct of your finances. A low credit score can have a direct bearing on your ability to obtain a mortgage from lenders. There is a general misconception that a poor credit score rating is solely determined by an inability to honour your debts such as late payments on a credit card, mobile phone, loan or mortgage. This is untrue as it could be simply down to a lack of credit held in your name which prevents the computer applying its logic.
Another major factor in determining your credit score and ability to borrow to purchase a home is the number of times you have moved address without registering on the electoral ‘voters’ roll. Mortgage lenders prefer stability as it allows them to make a rationale decision based on the likelihood of you repaying the debt. If you are forever changing your home it gives the impression (true or otherwise) that you may be moving on to conceal issues.
There is a spectrum of Mortgage Lenders in the UK who all compete for new customers, the most obvious differential being the interest rate that they offer. However, this is really the tip of the iceberg. Not every lender can afford to match the interest rates charged by Santander, Halifax, Nationwide and HSBC so they have to attract business via a more relaxed approach to their underwriting. A good mortgage broker such as Niche Advice, will be able to look at your credit report and select the lender which is most likely to offer you a mortgage.
Also do not get disheartened if the credit agency says you have a ‘poor’ or ‘fair’ credit rating it does not always correlate with the decision a mortgage lender will give you as they all run their own computerised decisions based on their lending experience. Again, it is these subtle differences, with the help of a knowledgeable Mortgage Broker that can be used to your advantage.
So what are other main factors you need to be mindful of in the run up to applying for a mortgage:
1) I have Adverse Credit will this affect my credit score and chances of getting a mortgage?
The main reason why a low or poor credit score is returned is missed or late payments, county court judgements (CCJs) and defaults showing on your credit file. These incidents are commonplace so do not feel alone but equally do not expect to pick the top mortgage from the best buy tables. The smaller and older the issue is the better your chances. Likewise, if the problem has been dealt with and brought up to date the greater the degree of tolerance there will be from the new mortgage lender as they will appreciate that you ultimately honour your debts. It is normal for issues over six years to fall off of your credit profile but this does not always provide you with a green light as the lenders may ask for details in their application forms of all historic credit issues and you are duty bound for full disclosure.
For more guidance on mortgages for customers with adverse credit look at some of the other articles on this website.
2) I have only been in the UK for a short time will this affect my credit score and ability to get a mortgage?
If you are an Ex pat or Foreign National that has not been in the UK for long you might suffer from a low credit rating as you may not have any credit here. My Top Tips below are on how to improve your credit score below these are probably the ideal place to start. If you have no political allegiance to those who run this country it could be a case of putting that aside and register for the electoral roll even if you have no actual inclination to vote.
If you are leaving the country and plan to return it makes sense to continue to have financial transactions running through your credit report to keep your rating up.
Top tips on how to improving your credit profile so you can obtain a mortgage
As I mentioned earlier it is not just poorly conducted credit that leads to poor credit scores. The computer searches for a credit footprint left by your transactions with other institutions. If there are no transactions it can be equally as damning as one which you have had a couple of late payments on. Here are some practical suggestions to help establish yourself on the credit map and we would also recommend you to talk them through with a professional Mortgage Broker, such as Niche Advice, before putting them into practice:
- Apply to be put on the voters roll at your current address.
- You could also apply for an overdraft facility with your bank (without the intention of using it).
- Change your ‘pay as you go’ mobile phone to a monthly contract.
- Take out a credit card and make small transactions (set up a monthly direct debit to clear the balance in full).
- Personal loans with good conduct can also help (avoid the ‘payday’ loan style as these have the opposite effect).
- Think carefully when changing address. If it is to save £10-£20 a month on rent it may be worth staying put.
- Speak to a professional and independent Mortgage Broker.
This list is by no means exhaustive so if you what to discuss over your own low credit score situation please feel free to call me.
For more information on getting a Mortgages with Low credit score please contact us on T: 020 7993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.