At times of economic uncertainty, and with Coronavirus set to have a long lasting impact, even the most financially organised can find themselves struggling. Credit card bills mount up, mortgage repayments become harder to meet, and it can be tempting to fall back on high-interest, short-term loans that become more and more difficult to service.
Even if such financial difficulties are quickly resolved, or you’ve followed the latest online financial advice and taken payment holidays, the consequences can be long-lasting.
Just one missed credit card or loan repayment can adversely affect your credit history, plus any payment holidays may be taken into account when affordability is assessed by lenders during applications. A poor credit history may in turn affect your ability to secure credit in the future. In particular, you may find that a poor credit score will make it much more difficult to find a competitive mortgage or remortgage deal.
Difficult isn’t impossible however. Whatever your financial situation, and however poor your credit score, there are steps that you can take that will make it easier to find a mortgage.
1. Know your enemy
Ok, maybe not your enemy exactly but understanding the size of any problem with your credit history is the first step toward fixing it.
While some people check their credit report regularly, and so are conscious of any problems, many don’t. Research in 2019 suggested nearly half of British adults have never checked their credit report at all, with that number rising to 72% in the 18-24 age group.
Your credit report is only a snapshot of your current financial health, but it is a great place to start. Besides anything else, accessing a copy of your report can highlight difficulties that can be solved quite simply. You can check your credit history via a range of websites, however, wherever you go the data is all pulled from the 3 main credit reference agencies Experian, Equifax, and TransUnion (previously known as Callcredit).
When you get your credit report, you’ll see a ‘score’ and an indication of whether your score is poor or not. Different organisations will score you differently, but whether your score is good or bad will remain consistent. So, while a credit report isn’t the only thing that lenders will use too make a decision about whether to lend to you, you can get a good idea about how they will view you.
2. Quick fixes
If your credit report confirms your fears about having a poor credit score there are some things you may be able to do immediately to make things better.
Are you on the electoral register for example? Lenders use the electoral register to help to confirm your identity. If you’re not on it, they will feel less secure that you are who you say you are. Registering to vote can be done quickly online, so if you haven’t done it already, do it today.
You may also notice mistakes on your credit report that could be affecting your credit worthiness. If you think there are any mistakes, contact the appropriate credit reference agency to ask for it to be corrected. Finally, if you notice any County Court Judgments (CCJs) that you are in a position to settle, make sure you do so. In the first 30 days you can then have them removed entirely, if they’re older, a settled CCJ has less impact on your credit history.
3. Get organised
Start to think about what type of information a mortgage lender might want to see, and make sure you have everything you need.
More and more of us have switched to paperless banking or receive electronic payslips. When it comes to making a mortgage application you may need hard copies of some of the documentation you normally access online. It’s worth making sure that you know how to get hold of any copies you may need.
If you’re self-employed, ensure that your accounts are accurate and up to date. Lenders will want to see them for proof of your income, and it’s good practise to keep on top of them anyway.
It can be confusing to understand exactly what lenders will want to see but talking to a mortgage broker will help clarify things. Which brings us to…
4. Get some professional help
When you use a specialist poor credit mortgage broker to help with your mortgage application, you don’t just get the benefit of their years of experience with adverse credit. You also have much of the stress of the application process removed, as they will handle the communication with lenders for you.
Mortgage brokers specialising in poor credit mortgages will also know which lenders tend to be more sympathetic to your circumstances, increasing the likelihood that your application will be successful. It doesn’t have to cost more either. While it’s true that some of the cheapest deals aren’t always available to borrowers with a history of adverse credit, a skilled whole-of-market broker can often find you deals that you may have thought were completely out of your reach.
5. Sort out your finances
If you’re thinking about applying for a mortgage or remortgage and are worried about previous poor credit, take some time to get your current finances in order. This means making sure that you have the best bank account for you, as well as checking whether, for example, you could take advantage of a better broadband deal, switch to a cheaper electricity or gas provider or find a less expensive mobile phone contract.
Spending a few hours on a comparison site to discover the best deals can save you hundreds of a pound a year, and the less money you spend, the better.
6. Don’t make things worse
Getting your finances in order will prevent you from making some of the mistakes that can really impact upon your credit report. These include missing payments or running up an unauthorised overdraft and adding more negative entries onto your credit report.
Don’t take any payment holidays or stop paying for any loans, credit cards, or contracts without agreeing it with the bank or lender first. That is the only way to ensure there is no adverse impact on your credit file. It’s also worth thinking about whether you really need that payment holiday. If you can make economies elsewhere short term first, that will have the least impact on any future credit applications.
One of the biggest red flags is the use of short-term, or ‘payday’, loans. Lenders hate seeing these on your credit report as they can indicate a chaotic approach to money which may make them unwilling to offer you a mortgage deal. So avoid.
7. Save up for a bigger deposit
If you took the advice to find cheaper deals on some of your regular bills, then put the money you save aside to build up a larger deposit pot. The more money you can put down, the more likely you are to find a lender willing to accept your mortgage application. Put simply, the more you have, the less they have to risk.
Whether your poor credit history was caused by one or two missed credit card payments or whether you were made bankrupt, there are actions that you can take today to start to make things easier. And there is help out there.