What is bad credit?
If you have bad credit it means you have a poor history of borrowing and paying back money. You might have paid bills late, or fallen behind on loan repayments in the past.
Your credit score makes up a large part of your credit history, so a low rating will indicate poor credit. But lenders will also look at the type of debt you had and the circumstances surrounding it. Take, for example, a missed repayment for a utility bill and a County Court Judgement. Both will have an impact on your credit score, but the latter is much more of a red flag for mortgage lenders. Similarly, a missed mortgage repayment is much more alarming to lenders than a missed payment for your phone bill.
It's important to note that mortgage lenders don’t look favourably on people with no credit history either. Whilst it’s usually marginally better to have no credit history than it is to have a bad one, you should still work on building good credit if you don’t have a history of borrowing and paying back money.
How do I know if I have bad credit?
You’ll probably remember if you’ve defaulted your mortgage payments in the past, or got a County Court Judgement. But sometimes your credit history can be affected by smaller things that you might not remember or even be aware of, like being tied to an old housemate with bad credit or missing a utility bill payment five years ago. As a result, it’s useful to check your credit score to see what the situation is.
There are a number of tools you can use to check your credit score, like Clearscore and the Money Saving Expert Credit Club. Most tools to check your credit score are free – but be sure to check before handing over any of your details.
You could also use Experian – it's more detailed and tells you if there are problems with your credit history. It does cost, but you can get a free 30-day trial.
Read more information on checking and interpreting your credit score.
Can I get a mortgage with bad credit?
If you’ve checked your credit score and the result isn’t great, don’t panic – a bad credit history won’t necessarily stop you from getting a mortgage.
But it will make you more risky in the eyes of mortgage lenders, so it’s likely you’ll have fewer options. The interest rate might be higher and you might need to save a bigger deposit so you’ll need to borrow less. If your credit history is very poor, it’s possible you might be refused a mortgage completely.
All of this might sound scary, but this doesn’t have to be the end of your home-buying journey – there are options.
Get a special mortgage
Some mortgage lenders offer mortgages specifically for people with bad credit. In 2019 Which? looked at a range of mortgage deals available and found that nearly a third of them were open to people with a poor credit history. If you’re happy to save up a bigger deposit (usually at least 25%) and pay higher interest rates, this type of mortgage could be a solution for you.
Wait a while
If you don’t have to buy a property right now, waiting can do wonders as blemishes on your credit history become less of a problem over time. Whilst this obviously isn’t convenient for everyone, waiting will give you more choice and save you money, so it’s worth considering.
Repair your credit history
If you’re waiting anyway, it’s a good idea to work to improve your credit history at the same time. There are a number of ways you can do this. For example:
Get a credit card and use it to make small, regular payments, and always pay it back on time
Register to vote
Pay off all outstanding debts
Put your name on the accounts for utilities if it isn’t already (but only if you’re able to keep up to date with payments)
Don’t apply for credit or loans that you don’t need or you don’t think you’ll be accepted for, as the applications themselves can affect your credit score
Read more tips on building good credit.
Make yourself a safe bet
If you can’t afford to wait, do what you can to present yourself to the mortgage lender as a safe bet. Apply when you have a steady income and, if you can, offer a high deposit. This may mean looking at cheaper properties, so you’ll need to think carefully about what’s more important, and where you can make compromises.
Another way you can make yourself look better to mortgage lenders is by being honest about your past credit issues. Trying to hide them won’t help as mortgage lenders’ searches are very thorough – it will just make you look bad.
If there are clear and unavoidable reasons as to why you got into debt in the first place, tell the lender. Someone who got into debt because of illness will understandably not be judged as harshly as someone who got into debt through careless overspending.
If you’ve got bad credit, it might not be impossible to get a mortgage. But if you’re able to, giving it a bit of time and putting the work in to repair your credit score will often pay off in the long run.