Buying a home is a huge financial commitment and a really exciting milestone in your life. Whether it is your first home or your fifth, a mortgage is a huge responsibility that you need to stay on top of. Of course, taking out a mortgage is a  very involved process, and often, your credit rating plays a large part in this. In this article, we are going to look at the question: how does bad credit affect mortgage?

What Is Bad Credit?

A credit score below 550 is generally considered bad credit. In comparison, a score between 800 and 1000 is considered excellent. There are a number of factors that contribute to your credit score, which are determined through your borrowing history. Here are just some of the things listed on your credit file:

  • Payment history: all your ongoing loans and payments are noted on your credit file. If you have made late repayments or defaulted on any loans, this will show up and be reflected on your credit score.
  • Loan enquiries: many people aren’t aware of this, but the number of enquiries you make to take out a loan can reflect negatively on your credit score. If you are shopping around for the best deal, it is best to do it in a close period of time to avoid this.
  • Court summons: if you have ever been summoned to court due to debt then it will be listed on your credit file.
  • Credit card utilisation ratio: the amount of your credit you use is another factor. If you are currently using all the credit available to you, this will lower your credit score.

If there is a listing on your credit file that is incorrect, you can go down the path of credit repair. You can either report this listing yourself or employ a credit repair company to help you out.

At the end of the day, there is a number of reasons you might find yourself with a low credit score. Whether it was poor judgement, poor financial management, or an unfortunate event that tipped you over in the finance department. The question is, what does this mean in terms of taking out a mortgage. How does bad credit affect mortgage?

bad credit mortgage

How Does Bad Credit Affect Mortgage?

The good news is that it is entirely possible to take out a mortgage with bad credit. However, you may only be eligible for certain types of home loans, and often will end up paying more interest as you are considered more of a risk to the lender.

Here are some ways to take out a mortgage with bad credit:

1. Apply to a lender that doesn’t use credit rating

Often, your application for a mortgage will be rejected based on your credit score alone. If you apply with a lender who doesn’t use this system, you have a chance to speak to a real person and explain your situation.

2. Show you have improved your situation

We all have a bad run of luck every now and then, but it shouldn’t hold you back. You need to be able to demonstrate to a potential lender that you are back on track financially and will be able to meet all the repayments, despite the low credit rating.

3. Shop around

Often, the mainstream lenders won’t even look at you if you have a bad credit score, so it worth looking into non-traditional lenders and extending your search. They will usually come with higher interest rates, as they are taking a chance on you.

bad credit affect mortgage

4. Raise your credit score

If you are still having no luck getting a mortgage, then focus on your current loans and ensuring repayments are met so this is reflected in your credit score. Some ways to improve your score include setting a budget and paying off existing loans. If you are still struggling, then it may be worth looking into debt consolidation to get all your loans in the one place and to make repaying them even easier. It may take longer to get that mortgage, but it will save you higher interest rates and get you back on track financially.

As you can see, there are options available to you if you have bad credit, it is about shopping around and finding the best solution for you.

Taking Out A Bad Credit Mortgage

If you are looking at taking out a new mortgage, then it is best to speak to a professional. The team at Bad Credit Loans are here to help you get the loan you need despite your financial history. We all deserve second chances. It’s about putting your best foot forward and making sure you get yourself back on track financially. Speak to the team today.

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