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Can you get a mortgage with bad credit?
A lender will look at your credit file to understand your financial history. It can be harder to get a mortgage if you have a low credit score, but it’s still possible.
What is bad credit?
Bad credit means your credit file shows things that may put off lenders, such as missed payments or lots of existing debts. This might suggest that you can’t afford a mortgage.
Giving a mortgage to someone who can’t afford it isn’t good for the lender or the borrower. A home may be repossessed if a borrower can’t afford to repay their mortgage. Getting a mortgage is a big decision and one that needs to be thought about carefully.
There’s no set definition of a bad credit history. Different lenders have their own rules and elements they’ll look at.
Key things that can lower your credit score include:
- Missing or late payments on credit cards, utility bills and other contracts.
- Failing to pay back a loan on time.
- Receiving a County Court Judgement (CCJ) or filing for bankruptcy.
- Having a high level of debt.
- Making too many credit applications that involve full credit checks.
- Sharing a joint account with someone else who has bad credit.
How does bad credit affect applying for a mortgage?
If you have bad credit, lenders may think you’ll struggle to meet your mortgage payments.
Some lenders might look in more detail as to why you have bad credit. Each credit rating agency (CRA) will determine your score differently. This can affect your application.
For this reason, it can be good to have explanations ready for things on your credit report that look bad, such as:
- Missed payments on a contract many years ago.
- Past debt that you have since cleared.
- Links to your partner's account who was the source of bad credit.
Often if the lender can see your finances have improved, it might help your application.
1. Improve your credit score
Your credit score gives lenders a view on whether you’re a reliable borrower. The better your credit score, the more likely you are to be accepted for a mortgage.
Building up your credit score illustrates that you can meet your repayments and manage your money. This could make companies more willing to lend you the money you need.
Improving your credit score isn’t a quick process, but there are steps you can take which might make a difference over time, including:
- Pay your phone and utility bills on time.
- Register to vote.
- Pay off any debt before you apply for a mortgage.
- Check for mistakes on your credit report.
2. Save up a bigger deposit
The higher your deposit and lower your loan to value (LTV) ratio, the less money you'll need to borrow. This shows lenders that you're able to save and make them feel more relaxed about your ability to meet your payments.
3. Buy together
If you're applying for a mortgage with a friend or partner, the lender will consider their credit score too. How much you can borrow is based on your combined income.
If they have a good credit rating, this can balance out your bad credit.
4. Use a guarantor
A lender may approve your mortgage if you have a guarantor. A guarantor is obligated to pay a mortgage if the original borrower can't.
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