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.
When you have to apply for a bad credit mortgage, there are many different routes you can take. Because the process is different than applying for a regular mortgage, it may be beneficial to seek advice before you make any applications, making sure you go for the right kind of mortgage first time is important as too many searches on your credit report in a short space of time will not work in your favour.
Ideally you should already have a copy of your credit report, so you can make sure that everything on there is correct, and also so you know what potential lenders will be seeing. Understanding credit reports is farily simple so you should be able to get some idea of how low your rating is. Finding a company that deals with poor credit lending is the next step. This is where things can get a bit tricky as there a many companies offering credit to people with poor payment histories, or bad credit ratings, even to people who have been bankrupt. Making sure you choose the company that is right for your needs is very important, as going with the wrong company could well end up costing you more than necessary with arrangement fees and interest payments.
It may well be to your benefit to approach a mortgage broker who specialises in high risk lending. You will of course have to pay them a fee, but the advise and specialist knowledge that they can give you can save you a lot of money in the long run. They will have a good knowledge of the types of mortgages on offer, and will be able to advise you based on your credit situation. While a lot of the time with regular mortgages it is cheaper to go direct to the lender, the nature of bad credit mortgages means that brokers are often the route to the best deals.
If you are not comfortable in going through a broker then you will need to do your own research into companies offering mortgages to people with low credit ratings, which can be done quite easily online, then approach them individually, explaining your circumstances and going through details such as your income, current debts, employment status etc. in order to get accurate quotes you can compare. It can be a lengthy process, but it is one that is worth carrying out properly to make sure you get the best deal available to you.
There are many situations where people find themselves unable to obtain the type or amount of credit they need. This is more often than not caused by poor credit ratings or bad credit history. Lenders have to assess many different criteria when deciding whether or not to lend to someone, and if these criteria are not satisfactorily met then more often than not credit applications will be declined.
The situation when it comes to lending for bad credit mortgages is slightly different, as there is security for the lender in the form of the property the loan is being taken out for. However, the criteria for borrowing will still be different than those for a regular mortgage. The lender will want more information on you, your financial background and current financial status than a regular mortgage lender may required. You will need to be able to proved you are in stable employment, have a regular income and also have cash available for a down payment. You can also expect your credit history to be gone through with more scrutiny than normal. It is in the lenders interest to make sure you are credit-worthy, and while you made be high-risk due to past bad credit, it is still possible to get a mortgage.
The type of product you may be offered will differ from standard high-street bank products. This is because the lender is exposing themselves to more risk as far as they are concerned. It is common to find that large deposits are required when taking out a bad credit mortgage, and interest rates may well be higher than average which again reflects the perceived risk the lender is taking.
Reading the full details of the package you are being offered is essential, as you don’t want to tie yourself into a bad credit mortgage deal for longer than you have to. After a year or two of regular mortgage payments, you should be able to re-mortgage with a regular bank or building society and get much better rates. Look out for things such as exit fees, early repayment penalties and long term fixed rate deals. While these may seem like they are going to get you the best deal possible at the time, in the long-term you could end up paying higher rates for much longer than is necessary, so bear in mind that by getting a mortgage you are giving yourself the opportunity to re-build your credit history, payment history and bring up your credit rating which means standard credit will be available to you in a year to 18 months. A lot of companies that offer bad credit mortgages rely on people tying themselves in for the long-term on unfavourable rate deals without thinking about the future.
