As any homebuyer will know, getting any mortgage can be challenging. Getting bad credit mortgages is even more challenging. The good news is that it’s definitely possible. What’s more, you can increase your chances by doing a bit of work in advance. Here are some tips to help.
Wait as long as you can
Time is famous for its healing powers. They apply to your credit record too. Blips on your credit record usually have the most impact when they are fresh. As time passes, however, they fade and eventually disappear into nothing.
Ideally, you’d wait until they were completely gone before applying for a mortgage. In the real world, however, this isn’t necessarily going to be possible. Just wait as long as you can to give time as long as possible to do its work.
Push back on the damage
Do whatever you can to give time a helping hand. At a minimum, keep an eye on your credit records and get any mistakes corrected quickly. If you can, see if you can settle any outstanding debts to get negative indicators removed from your credit record. For completeness, creditors do not have to do this, but there’s no harm in asking.
If you’re renting, see if you can get your rental payments counted towards your credit record in the same way as mortgage payments are. Some landlords and lettings agents report these automatically to the credit agencies. Many don’t but you may be able to self-report them.
The potential catch here is that you will need to pay your rent from an account that supports open banking. In general, larger banks do but smaller banks are much less likely to do so. If your bank doesn’t, then you might want to think seriously about whether or not to switch accounts so you can benefit from everything open banking has to offer.
Think about what you buy
Remember, lenders are probably going to want to see six months’ worth of your bank statements. It’s therefore advisable to think before you spend. Essentially avoid making any purchases that could make lenders question either your ability or your willingness to pay off a mortgage. For example, avoid using your debit card for gambling.
If you absolutely must buy something that you think lenders will question, use another payment method such as an ewallet (e.g. PayPal) or a credit card. Remember, however, that lenders will probably see you putting funds into an ewallet and/or paying off a credit card. It’s therefore strongly advisable to keep these purchases to a minimum.
On the flip side, think about whether or not there are any purchases you could make that would look reassuring to a lender. For example, do you have plenty of insurance, especially if you’re self-employed?
Build as big a deposit as you can
This holds for any mortgage but particularly for bad credit mortgages. In simple terms, as the size of a deposit goes up, the lender’s risk goes down. Big deposits can therefore do a lot to overcome the disadvantage of having bad credit.