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The Exact Process Used to Arrange a Bad Credit Mortgage





The application process to arrange a mortgage with bad credit can be simplified by splitting things into five specific areas:

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Your Credit History (you can get these files free or for £2)

The Actions You’ve Took (unknowingly) That’s Tanked Your Credit Rating (further)

The Fees Involved for Advice Specific to Your Financial Situation (that can get you approved for a secured home loan)

Making the Best of a Bad Situation by Making Your Proposition to Lenders More Attractive (balancing the risk)

Proving (fast) That You Are a Responsible Borrower





How and Where to Get the Information Lenders See about Your Previous Financial Data..

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Your credit reports contain all the information that’s blocking your access to a mortgage with standard lenders. Banks and building societies.



Your financial data going back six years is recorded on a credit database held by Experian, Equifax and Call Credit.



Different lenders and any company you’ve had a financial contract with, report data to one or more of those lenders but not always all three. For that reason, an entry on your Experian credit files could be different from what’s held on the Call Credit database. Information is shared between the three reporting agencies, but it takes time for records to be updated.



Incorrect entries happen and so too do inaccuracies.



To stand a fighting chance of being approved for a mortgage with bad credit, you need to know the data that’s visible to lenders.



There’s two ways you can do that:

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Is free using a free credit score service such as Noddle, Clear Score or any of the many others.



Is with your Statutory Credit Report. Each of the three credit reporting agencies can only charge a £2 fee to cover the partial cost of administration.





The free services report the same data the three credit reporting agencies give to them. Only slower. To get your hands on your up-to-date financial data, go direct to the source, pay £2 to each company and you’ll get access to the same credit data banks see that result in declining your application.



You will need all three reports because each can have different entries recorded. Lenders can credit check you with any or all credit reference agencies.





The Unknown Actions You’ve (Likely) Took That’s Damaged Your Credit Rating Further



Agreed to let a bank, building society or any business offering your any form of finance to run a hard check on your credit file. Every time a hard search is run, it is recorded. The more entries there are in close succession, the more your file can indicate you’re in need of finance, rather than just wanting it.



Actively managing your credit scores is tricky because any more than one search in a six-month period tends to do more damage to your rating.



To avoid that, you can request, and actually need to ask for a soft quotation search only. Do not agree to a hard check until you’re working with someone personally to explain your situation. Most certainly stay away from online applications when your credit is already damaged. That just makes it worse.



The worst place to ask for any loan is your bank because they only cater to safe borrowers. Those with a proven track record of borrowing within their means and no negative entries on their credit file. When the so-called advisors see a single negative entry, you’re declined without any way to give your version of events. The computer decides your fate. Advisors are operators in banks.



You can get the right advice in the following ways:

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With a Broker with Reasonable Pricing that Specialises in Adverse Credit Mortgage Products



The right type of broker you need in your corner is someone impartial to any lender. Independent brokers with whole-of-market access. What whole-of-market refers to is that they aren’t tied to any lender. Like, in your bank. If you ask someone who works for the bank, they can only advise on their own financial products. Not what any other lender has that would be suitable to you.



With impaired credit, a specialist broker is needed. What’s more is they need to know the market very well and you need to know what it’ll cost.







The good news is it can cost anywhere between a free service going up to 2% of the loan value in fees, although that’s in the high end and reserved for those with really bad credit and low deposits.



The crucial role a broker plays is knowing what lenders are more averse to risk than others. That way, they can direct your application to a lender, who in their professional opinion, is the most likely to approve your loan. They need to because once a hard check is run by a lender, it can set the efforts back so long that you would have lost the chance to buy the home you wanted.







Before they get to work on your case, fees should be made clear up front. Some will tell you a fee, others may quote a percentage of your home value. General prices tend to be £300 for mild bad credit, rising to around £1,000 on more complex cases.



Making the Best of a Bad Situation by Making Your Proposition to Lenders More Attractive (balancing the risk)



High fees are quoted for high risk borrowers. Those with more than a few negative entries, perhaps more serious such as CCJ and bankruptcies. The higher the risk, the less likely a lender is to approve because they want assurances or need to see things happening that make you trustworthy, or both.







You can take one of two approaches to make your application more appealing. The first is more likely to get a lender to give serious consideration to your situation and that’s for you to stump up more of a deposit.



Mortgages are based on loan-to-value (LTV) ratios. For ease of calculation, applying for a mortgage of £100,000 with a 75% LTV would mean you’d be asking for £75,000 and putting down a £25,000 deposit. If that’s unlikely to get approved, the simplest thing to do is pay more. Not for the broker service, but towards the loan. Increasing your deposit amount tips the scales to more of a level playing field where both you and the lender stand to lose a lot, rather than the one with the most to lose being the company lending the capital.

The slower approach is the credit repair route.



Proving (fast) That You Are a Responsible Borrower



You can’t prove you can manage your finances now when you can’t get any credit approved to make timely repayments. What you can do though is apply for what’s called a credit building credit card. These are designed specifically for those with bad credit. If you do go down this route, pay your balances in full on time every month. This shows lenders you are being responsible with your finances, so it builds trust. Any data is better than no data for lenders to assess.



For those with a really bad credit report, a guaranteed acceptance credit card would be more suitable, but you can expect the interest rate to be high. Probably too high to justify using one.

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