Bad Credit

Everything You Need to Know

Getting a mortgage is a complicated process in itself, but adding a poor credit score into the mix can throw up a few extra challenges. The key is to be prepared so you can know what to expect. Here’s everything you need to know about credit scores, how to improve them and mortgages for bad credit to help you realise your dream of owning a home.

What is Bad Credit?

Bad credit refers to a low credit score. There are a number of things that contribute to a poor credit score, such as missed payments, defaults, County Court Judgments (CCJs), bankruptcy, or excessive debt. Credit scores in the UK are usually calculated by credit reference agencies, and each of these agencies has its own criteria for a poor credit score. Generally speaking, a score below 570 (Experian), 669(Equifax), or 660 (TransUnion) is typically considered poor.

Practical Tips to Boost Your Credit Score

So, you have a bad credit score. While this doesn’t exclude you from home ownership right away, it’s always a good idea to do what you can to improve it. Here are some tips you can start putting into action today.

Paying Off Debts

Clearing outstanding debts demonstrates financial responsibility. Start with high-interest debts and gradually pay off smaller ones. Setting up a repayment plan can help manage this process efficiently.

Correcting Errors on Credit Reports

Regularly check your credit reports for errors or inaccuracies. Mistakes can unfairly lower your score. Raise any inaccuracies with the credit reference agencies to have them corrected.

Managing Credit Utilisation

Credit utilisation is the ratio of your credit card balances to your credit limits. Aim to keep this ratio below 30%. For instance, if your credit limit is £1,000, try to keep your balance under £300.

Avoiding Multiple Credit Applications

Each credit application leaves a mark on your credit report, and too many applications in a short period can negatively impact your score. Space out your credit applications to avoid this issue.

Registering on the Electoral Roll

Being on the electoral roll makes it easier for lenders to verify your identity, which can positively impact your credit score. It’s very easy to ensure your details are up-to-date and correct them if not.

Bad Credit Mortgages

If your credit score remains low and you don’t want to wait around to get onto the property ladder, bad credit mortgages can be an option. These are specifically designed for individuals with poor credit histories. They typically come with higher interest rates and larger deposits, and you may have to meet stricter credit or have a guarantor in place. This is all because a lender sees you as more of a risk than the average borrower.
Navigating the mortgage market with bad credit can be challenging. A mortgage broker can be invaluable, as they will have access to a wide range of lenders and will be able to guide you through every stage of the application process.

What to Do Next

By taking proactive steps to manage your credit and seeking professional assistance from a broker, you can really boost your chances of owning a home. So why not start the journey today?

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