Is your terrible credit record stopping you from getting the mortgage you need to buy that property you want to buy? The good news is that you are not shut out of getting a mortgage forever.
To get back into the good books of lenders is not as difficult as you may think, and may not take as long.
In a very bad situation, you have a judgement debt or two…you may be able to repair your credit sufficiently to get a fairly reasonable mortgage in a year or two.
If your score is not horrendous, you may be able to clean up your act in 6 months or so.
So how can you make yourself attractive to lenders when you have messed up your credit file badly?
Here are 10 steps which could boost your credit score and get you a decent mortgage.
1. Face the problem head-on
- Get your credit file
- Check your entries and score
- Deal with any problem or issue to boost your score.
You can get a paper copy of your credit file by writing to credit reference agencies Experian or Equifax, paying the £2 fee.
To get your file/score quicker, sign up for a free report as offered by several agencies online including Clearscore and Noddle. Be careful to check that the free report is not simply an offer – with monthly charges applying after the initial freebie.
If your score is bad, low, work out the reasons. They could include:
- Individual Voluntary Arrangement (IVA)
- County court judgments (CCJ)
- Missed or late payments
- High level of borrowing
- Short/no credit history
2. Address any bankruptcy entry
A bankruptcy entry will stay on your file for 6 years or until you are discharged if that takes more than 6 years.
If a bankruptcy entry is still showing when it should be removed, contact the credit reference agency and ask for it to be removed.
Add a short note to your credit file explaining the reasons why you became bankrupt – for example illness or redundancy.
You have a duty to disclose your bankruptcy to potential lenders and you may need to search for lenders willing to lend to ex-bankrupts as not all lenders will be willing to entertain you.
3. Deal with any IVA entry
An IVA entry will stay on your credit file for 6 years from the date the IVA started.
Add a short note to your credit file explaining the reasons (hopefully good) why you had to enter an IVA.
3. Address any county court judgment
A county court judgement will stay on the official register for 6 years unless it is set aside by the court or is paid in full within a month.
An entry of the judgement on your credit file will remain there for 6 years.
If a judgment has been entered without your knowledge, seek legal advice to see if you can set it aside by court proceedings.
4. Action any defaults
Creditors will “default” you if you fail to comply with your credit agreement, normally this means missing a few payments and not taking steps to remedy your breach.
Defaults can involve relatively small sums and the key thing is to prevent them from happening. If you have missed a payment or two, clear them fast to remove the risk of being defaulted.
A default stays on your record for 6 years and if there is a “good reason” why the default occurred, explain it in a note and add it to your credit file.
5 must know things about money (5 important money fundamentals)
The importance of savings (what we always need on the inevitable rainy day)
6 must use credit card strategies (super smart ways to deal with credit cards)
5. Rectify missed payments and cut out late payments
If you find any missed payments, arrange to pay them fast.
Work out why you are having missed or late payments. Your income could be insufficient or you could be spending your money on the wrong things.
If your income is short, look at things like doing overtime or finding a second job. Can you borrow from family or friends to sort things out immediately?
If your problem is bad spending habits, create a budget and stick to it.
If you are messing up your payments by making manual payments, set up direct debits or standing orders to ensure that your payments are paid on time.
Your priority should be to stop late or missed payments leading to a more serious problem – a default.
6. Address high levels of credit
Your score is going to be marked down if you are borrowing a high percentage of your available credit – for instance, you have a total credit card limit of £10,000 and you owe £9,750.
Can you pay off the credit card debts altogether or reduce them substantially? Can you consolidate several debts into a single cheaper debt? Can you benefit from balance transfer credit card deals?
Generally, take steps to stop yourself from exceeding your credit card limit since that is unauthorised borrowing.
A mortgage lender will take your existing borrowing into account in deciding what you can afford to borrow from them.
By eliminating or reducing your personal debt, you will make yourself more attractive to mortgage companies.
7. Deal with short/no credit history
If you are young or have been out of the country for years, you may not have had the time to build up a long credit record or any credit record at all.
Lenders can’t be sure about your creditworthiness if you have no or limited credit history.
If you have a short history, it will lengthen with time. If you have no history – for the reason that you have no credit in place – look to take out credit in a few forms which may be of practical use to you. That could include taking out a credit card or a small loan for something you really need and will use.
You should also ensure that you get on the electoral roll.
8. Identify and address any error
It is not uncommon to find errors on your credit file – especially as levels of credit fraud grow.
If there are credit searches on your file which puzzle you, contact the organisation which made the searches and make sure that they have been properly entered.
You could find credit has been obtained in your name without your knowledge. Again you should contact all relevant parties and make sure they know that the credit does not relate to you and take steps to rectify the position.
Try to have rogue entries removed.
In relation to each error, place a note on your credit file explaining the position and the fact that you are not at fault.
9. Keep your credit applications low
Frequent credit applications are likely to depress your credit score.
Where possible, apply for credit without leaving a footprint – for instance by using credit reference agencies which show you in advance your prospects of being approved by various lenders – minimising your chance of being turned down on an application and having to make another application.
10. Get on the electoral roll
Being on the electoral roll can favourably influence your credit score.
If you are not on the roll, you can apply for free by completing a paper form or applying online.
Getting into debt problems can seem like a death sentence for your chances of securing an affordable mortgage. But it need not be that way.
You can improve your credit score significantly with time by systematically dealing with your credit issues one by one, not ever giving up.
Have you ever got into debt? How did you escape? If you are in debt now, what steps are you taking to sort out the problem? Others may benefit from learning about your experiences. Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com