Bad Credit Mortgage Calculator

Being turned down for a mortgage due to bad credit can be a heart-breaking experience, especially when you had ideas for the future that centred around getting the finance for your next perfect home. In these circumstances, the best thing to do is not dwell on it, but to identify what the realistic options are in your current circumstances, why the bad credit happened and what you can do about it.

What causes a ‘bad credit record’?

Over the course of your activities with credit and borrowing, there are a variety of events that could leave black marks on your credit history and therefore ring alarm bells with lenders when they come to run credit checks and assess your profile when it comes to borrowing. This can range from something you might consider relatively minor, such as a few late or missed payments on your bills or shopping accounts, to far more serious issues such as a County Court Judgment (CCJ) following a default notice, an Individual Voluntary Arrangement (IVA) or even a bankruptcy.

The majority of high street or mainstream lenders use a computer-based scoring system to assess your mortgage application, often relying on scores generated by the three main UK credit reference agencies – Equifax, Experian or TransUnion. They will interpret a low score as indicating you are a higher risk to lend to and may default on payments in the future.

While the presence of bad credit on your file will inevitably lead to a red flag and a lower score, a few lenders may forgive one or two minor events, especially if they were a few years ago and you have kept a clean record since. However, most high street lenders have very strict criteria, and will refuse you outright if there is any presence at all of bad credit in your financial history. If you are lucky enough to be accepted, lenders will stipulate a much higher interest rate than is usual, or may require you to provide a larger deposit to give them more security on the loan. As someone with bad credit, your options will be limited.

This is a very interesting question and it will be helpful to you if you have poor credit, to understand what activities agencies and lenders look at to compile your credit score or rating. There are basically five elements that play a key role when credit agencies and lenders calculate your credit score:

Payment history
This is the raw data on your payments for credit card instalments, personal loans and previous mortgages, showing whether or not you have a pattern of prompt, regular payments.

Current level of debt
Collated from your credit card and personal loan data, revealing whether your cards are maxed out, any personal loans outstanding and your overall financial exposure.

Length of credit history
The longer that you have been borrowing and making use of various credit facilities, the better, especially if it shows a responsible approach to debt and repayments. Conversely, a short credit history may cause a problem with lenders as they will not have enough data to indicate whether you are a high risk or not.

Types of credit previously used
This is simply an overview on the types of credit you have made use of previously. The only factor that may cause an issue will be the presence of any ‘payday loans’ on your records, as lenders generally see these as a desperate last resort source of finance and an indicator of poor money management.

Number of credit searches
Not ones that you have made yourself or pre-approval checks by lenders (they will have no impact on your credit file), but searches made by businesses extending lines of credit to you. A high number could indicate that you have taken on more borrowing than you can manage.

If you have concerns about any of the above, or want to know what you can do to counter any negative effects, please bring this up in your free, no-obligation initial discussion with one of our expert advisers. They will explain everything fully.

There are three main credit reference agencies generally regarded as being the most authoritative sources of credit scores in the UK market: Equifax, Experian and TransUnion. These are the agencies lenders from across the industry rely on for their initial credit checks. A fourth reliable resource is CreditKarma, which draws on data from Equifax and TransUnion to generate their scores.

Credit reference agencies collate data from various sources about people’s borrowing, credit and repayment habits and patterns, and then present this to lenders or companies considering extending lines of credit to individuals. This allows them to make an informed decision on whether the applicant will be a reliable borrower or may be a default risk. Either way, it’s important to note that the reference agencies do not make any decision themselves, they simply supply the information.

The data that they hold on people falls into two categories: credit account information and public information.

Credit account information

This is sourced from the major UK lending companies who have consented to share information about the people they have lent to – their credit arrangements, the amounts they owe, the number of accounts and how they are managing them (prompt payments, etc.). It will be in each company’s interest to share the data, so they can all avoid lending to people who could pose a high risk of default.

Public information

This is data held on public files, such as the Register for Judgments, Orders & Fines, the Insolvency Register and the electoral roll. Presence on the electoral roll goes a long way to proving your personal details, while the other registers store details of County Court Judgments (CCJs), bankruptcies, Individual Voluntary Arrangements (IVAs), debt relief orders and administration orders.

It’s worth remembering that information on CCJs, IVAs, bankruptcies and other adverse credit events remain on file for just six years. After that time, they fall outside the scope of records and searches and should no longer have an effect on your credit rating.

When looking into your own credit rating, it’s best to ask for a copy of your report from each of the three main agencies (this is now free and easy to do online) to ensure that the information each of them hold is correct. If you see anything that should not be included, or needs to be changed or updated, then you should write to the agency concerned straight away. Any changes can take three or four weeks to process.