Adverse Credit - Frequently Asked Mortgage Questions

Often the computer says no, but understanding why is important, alongside what you can do to help prevent that.

See video transcript

Hi guys! Dan and Kye here again from Crescent Mortgages giving you another one of our FAMQ's (frequently asked mortgage questions) and today's topic is going to cover, Adverse Credit, poor credit, credit impaired, bad credit, credit issues, anything that is connected with your credit file in a negative way and how it can impact your mortgage. Before we jump in just to briefly introduce ourselves again, so Dan and Kye we are CeMap qualified mortgage and protection advisors with a combined 20 years in the industry - let's jump into it and give them some info.

Let's do it!

Okay, so as the intro illustrated there's lots of different terms that can be used to describe someone that has poor credit. I'm guessing if you're watching this video that may be you. Now first of all just to let you know, again I'm sure you probably do, what is poor credit? adverse credit?

Adverse Credit, what are all these things? So generally speaking it's something that's gone wrong with a credit account, so credit card, loans, mortgages, possibly things like telephone or internet communications, they sometimes pop up where you've maybe missed payments.

Anything that's going to show on your credit file.

Exactly. Missed payments or late payments or possibly worse, you've defaulted, county court judgements, full bankruptcy there's just a few of them on there the late payments and missed payments and then probably defaults being the more common, but anything that you've not been able to meet payments on time it's gonna show up as a little blotch on that credit file of yours.

Now in terms of how it's going to impact you.

So it's a really hard one to be black and white on because unlike a lot of other criteria with lenders, which is really black and white, credit is going to be checked by a computer. It's the first thing they do, it's done by a robot with algorithms in the background to work out whether you meet their internal score so you can never say 100% whether you, well normally you can't say 100% whether you will or won't pass a credit check until you've done it but obviously understanding your credit to start with will give a very good indication of whether you will be accepted and which lenders to look at.

If we go through the different issues and the severity, so first of all, if you've just had one missed or late payment let's say on a loan for whatever reason, whether you didn't have the money or there was just a you know a mess up with the payment, if you have one missed payment and then you get straight back on top of it immediately and it continues. Basically not in any kind of deficit moving forwards then, although that's not a good thing, a missed payment is never a good thing, often it's not going to be the end of the world is it?

Especially if you're putting down a bigger deposit and especially if months have passed since it happened, it's probably not going to be the end of the world but again, obviously, it's never a good thing and if you're putting a really small deposit down that can sometimes be the difference between passing or failing a credit check.

Okay, other than a singular missed payment it would then be the accumulation, so if even if it's just one of your credit accounts and let's say you did miss that one payment and then the next month you missed another one, so there's now two in a row, often that will pop up as a number one and then two on your credit file or something along those lines.

That looks a lot worse. One mishap can easily be "I forgot, the direct debit didn't work" - there's lots of reasons why and lenders systems do often take that into account but when you miss more than one that would indicate to them that you are struggling to afford it, that's what it looks like.

Even if it isn't the case and then it starts to get a bit harder doesn't it?

Yeah exactly, and then when you start to get to three, four, five missed payments in a row that does start to look pretty serious and can really impact your ability to get a mortgage, especially if they were very recent, if that took place maybe a year ago and you've got back on top of things and there have been no other issues, again you might be okay, but often providing you put down maybe a bigger deposit, as always.

We should kind of highlight that smaller deposits, so the higher loan to value is, the stricter the credit checks, but with lower loan to value, or the bigger your deposit if you're buying, the more lenient the credit check.

From the multiple missed payments the next one get into is a default so that's normally six down and it shows up as an eight or six to eight depending on the report. So that's one you've missed quite a few on now and generally it's because someone can't afford it for some reason, although again, often can be an error.

Lenders now are seeing that as a you definitely have an issue with meeting payments on time, that's not just missed payments there's a name for it, you have defaulted on on a credit commitment. If you default that will certainly have some kind of bearing on the mortgage research that your broker does, it's not to say that you won't be able to get a decent mortgage but it is going to have a bearing on the research that they do.

I guess we'll come back to that in a second but just jumping onto the next two, so CCJ, county court judgment is generally the next step. If they weren't able to resolve the default within a reasonable amount of time they can take it to court where it becomes a CCJ or county court judgment, which again is considered fairly serious, as far as credit issues go.

Then there's a few others, but the main other one which generally is considered the most severe is bankruptcy, where you've just not been able to get on top of your finances and you have filed for bankruptcy, which is generally considered the most serious and that is going to have a serious impact on your ability to get a mortgage.

The one that we did forget - I know we said that one missed payment isn't always a major problem - the exception to that is a mortgage payment. If you've had a missed mortgage payment again that is considered very serious and again that will often have a big impact on your ability to to get a mortgage .

So I guess that's covering some of the common ones that come up in terms of how that might impact you - so you want to jump into that Kye?

We've kind of touched a little bit on the how but yeah the earlier examples, so a missed payment or maybe a couple of missed payments not too much of an issue. A default often lenders want that to be satisfied, often lenders want that to be clear for a specified period of time, so a year, maybe two years three years isn't uncommon. It's not to say that you couldn't get a mortgage the month after defaulting but things have to go in your favour, everything else has to look pretty good to go with it and generally the more serious the credit issue the the more time that needs to have passed since it was first registered.

The important point that Kye just made there was that generally if it's satisfied it's much more favourable. That doesn't mean you can get a mortgage as soon as it's satisfied but sometimes there's the the time between it being satisfied and when they'll give you a mortgage that's what they're looking at so try and satisfy these issues as quickly as you can because it could delay the period until you can find a mortgage.

I'd probably add in quickly, if it's ever on your report in error and you get the company admitting it's an error, you need to get them to remove it, that's quite a common one.

They can't just admit to it they actually have to contact the credit agencies and have it removed from the file and only then will it not show up on your mortgage application.

Then the last two, county court judgments and bankruptcy, well you get a mortgage with those? Well you can, it's harder than the default, often you do end up having to wait at least three years, sometimes six years, and actually in the event of bankruptcy some lenders may never lend to you because they can ask on the application even if it's fallen off of your credit file have you ever been declared bankrupt and if they ask that question of course you need to be honest and say yes, but actually again with all of them the more time that passes the easier it is. If they are up to date or satisfied depending what it is and time has passed it gets easier.

That's the short answer I suppose.

Other factors come into it; your loan to value or your deposit if you're buying is always a pretty big factor in credit. I guess the the final point for me is that you've got your high street lenders which are generally you know the big banks and building societies that you'll be familiar with, they often have really good service they often have some of the best interest rates, and they're obviously the lenders that you want to try and go with ideally a lot of the time, however if they're not an option because they're not happy with your credit, because they're sometimes a little bit stricter then there are other more specialist lenders, sometimes known as subprime, who are more lenient with credit issues so there may be a window where you've recovered from your credit issues, maybe not that long has passed, high street lenders won't lend to you but some of the specialist lenders may consider it and again your broker is able to do the research there to find out if your credit will fall in or outside of their criteria before going ahead.

I think that probably covers everything from from me.

I suppose the last thing I'd probably just add quickly is that your your broker will probably ask you for a copy of your credit file, so you're probably prudent to get one, you can get them through many places; Experian, Equifax, Clear Score, Check my file shows you quite a few actually - its quite popular these days. 
A lot of these have free trials or you know free samples whatever it may be, getting one of those would be helpful because if you send that to your broker they can see the exact date, exact amount and give you a more accurate response to I think this will be all right or we need to work on this.

If you have any question marks about your credit then definitely get your credit file. Your broker is going to need to see it to give you the best advice.

Great I think that covers everything um as always any questions leave them in the comments or you can click the link in the description to head over to our website drop us a message give us a call and hopefully we'll hear from you soon.

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