Poor financial management can lead to debts being unpaid or regular payments being missed, this in turn leads to credit reports reflecting the fact that you haven’t kept up to date with your financial commitments and therefore may be a lending risk. In the case of one or two missed payments it is normally possible to speak to your creditor and explain why you have missed the payments, bring the account up to date and all is well. However, in the case of regularly missing payments or consecutive missed payments, this kind of behaviour is reported to credit agencies which will make a note of it against the relevant account on your credit report.
It is important to keep on top of financial commitments, as not doing so can lead to penalites, debt collection agencies becoming involved and worst case scenario being taken to court or forced to go bankrupt. However, many people struggle to manage their finances effectively and find themselves in the situation where their credit report tells potential lenders that they are a high-risk which in many cases is reason enough for credit applications to be declined. It is in these situations that people find themselves turning to specialist lenders who can offer loans, credit cards and mortgages to people deemed as high-risk.
If you find you have been rejected for credit, it is worth getting a copy of your credit report to get an idea why – it is not uncommon to find errors on your report that will go against you, all you need to do is call the credit agency and explain the error to them and ask them to correct it. If you have been rejected for credit don’t just keep applying in the hope that an application will be accepted as each application requires a search on your credit record, and each search leaves a footprint showing what it searched for and why. Multiple searches in a short space of time will only drive your credit rating down, which if you have been rejected already is the last thing you need. Check you credit report and if it is showing you as a high-risk debtor then you will need to approach a specialist company to help you get a bad credit mortgage. These companies balance the risk they are taking by asking for higher deposits and charging higher interest rates than most high street banks, and of course the loan is effectively secured on the property so there will always be some form of recompense should you default on your payments.
There are a few things you should consider before committing yourself to a bad credit mortgage. While it may seem like the only option available to you, stepping back and looking at your situation and ways you can improve it can open up other possibilities that you may not have considered previously.
Firstly, why do you have bad credit? It may be that you just found yourself in difficulty for a while and made a few mistakes, if this is the case it won’t take long to repair your credit rating and get yourself back in the favoured lending bracket. Perhaps you are just bad at managing your money, in which case you should look to get some help with managing your finances. Taking out a mortgage isn’t going to make your financial situation any easier, in fact it is more likely to make it harder as you will have another debt and repayment to manage. Piling debt on debt isn’t the way forward.
The next thing to look at is why you are applying for a bad credit mortgage. If it is to consolidate other debts, then this may not be the best path to take. The very fact that you already have bad credit means that you have managed your debts poorly in the past, so using your home as security on a larger amount, even though it will have packaged all your debts into one, means you are now risking the roof over your head should you fall behind with payments. In this kind of situation you are much better off contacting your creditors and coming to some kind of payment agreements with them, making sure they are affordable and manageable, but will also go a good way to clearing the debts.
Then consider, if you are looking to buy a property, is do you really have to buy right there and then. The terms offered on bad credit mortgages are a lot less favourable than those of a regular mortgage and will require you to have a much larger down payment. You may find you will be a lot better off staying where you are, or renting somewhere affordable while working hard on repairing your credit rating and giving yourself a good payment history, both of which are looked on favourably by lenders. Even just 6 months of good payments can bring your credit rating up, and will give any potential lender the confidence that you are able to maintain regular monthly payments.
