If you have a bad credit score and no deposit, you’ll find it next to impossible to be approved for a mortgage.
Lenders use your credit score as a means of assessing how likely you are to make timely mortgage repayments. The more money you’re looking to borrow, the higher your credit score generally needs to be. If you have a bad credit score, you’re therefore likely to be considered too risky for a 100% mortgage.
Your application may be considered if your annual income is extremely high compared to the size of your mortgage, but even then there are no guarantees.
Rejected mortgage applications will harm your credit score further. What’s more, any 100% mortgage deal you can access with bad credit will include higher-than-average interest rates. You may also require a guarantor.
In the long run, you’re therefore likely to be better off repairing your credit score and saving for a deposit before applying for a mortgage.
Speak to a specialist lender
If you are struggling to get a mortgage via the traditional methods you could speak to a specialist lender. They can provide the expertise on a particular area of lending where you’re looking for assistance.
Can I get a mortgage without a credit check?
Although there are some “specialist” lenders that use humans to decide your eligibility, rather than a credit reference algorithm, you can expect every mortgage company to take a detailed look at your previous spending and borrowing. There is no way to hide irresponsible borrowing from your mortgage provider.
Tips for building your credit score
The best way to improve your chances of being accepted for a great mortgage deal is to improve your credit score. Here are some tips to help you do this quickly and efficiently.
- Make debt repayments on time. Control your spending to ensure all your bills and debt repayments are made in a timely manner.
- Pay utility and telecom bills by direct debit. Every timely payment will help to improve your credit score.
- Apply for a credit builder credit card. Credit builder credit cards are designed for people with a bad credit score to help them improve it. These cards have huge interest rates and small credit limits, but they are easier to be approved for. Apply for one of these cards, spend a small amount and pay it off in full each month.
- Don’t apply for too many financial products. Every time you apply for a financial product, the company will run a credit check on you. This produces a short-term dip in your credit score, so avoid applying for too many, especially in the months leading up to a mortgage application.
- Fix your credit report. It’s worth checking your credit report for errors and amending any you find. You can do this for free by contacting any of the three major UK credit reference agencies: Experian, Equifax or TransUnion (Callcredit).
Tips to save for a deposit
Although some 100% mortgages remain available, you can improve your chances of being approved for a mortgage deal by saving up a deposit worth at least 5% of the property value.
Here are some tips to help you do that.
- Reduce your outgoings. If you’re struggling to save money for a mortgage deposit, this is a great first step. Have a look at all your bills and see if it’s possible to arrange a cheaper deal, either by switching providers or haggling with your current one. Consider what non-essential outgoings you can cut out or reduce while you’re saving for a deposit. Many first-time buyers move into their parents’ house in order to save money on rent and household bills.
- Transfer money into a savings account. Open a savings account that will pay you the most interest on your deposit, then set up a standing order that transfers money from your current account on the day you get paid. This will remove any temptation you have to spend your savings.
- Get some government assistance. There are several schemes that allow you to claim free money from the government for your mortgage deposit. With a Help To Buy ISA or Lifetime ISA, the government will top up your savings when they are spent on buying a house. With a Help To Buy mortgage deposit, you can borrow up to 20% of your property’s value to use as a deposit. Make sure you understand the terms associated with these products before applying for them.
- Apply for a joint mortgage. It’s possible to apply for a mortgage jointly with up to three other people. Provided you’re all saving at a similar rate, this will help raise the funds for a mortgage deposit quicker. Be aware that you’ll all be jointly responsible for the mortgage repayments, even if one of you stops paying. You’ll all have to agree when you want to sell the house too.
Why do I have a bad credit score?
- No credit history. Many mortgage applicants have a bad credit score because they have no credit history at all. Your credit score starts on 0 and improves when you make timely payments on debt or direct debits, so it’s worth making payments like these as soon as possible.
- Late repayments. If you’re late repaying a bill, this will damage your credit score, as will falling into an unauthorised overdraft.
- Applying for too many financial products. Every time you apply for a financial product, you’ll be subjected to a credit check. This temporarily lowers your score.
- Falling into serious debt. If you fall into serious debt, this can wreak havoc on your credit score, even if you had previously been a responsible borrower. Many lenders will flat-out refuse applicants who have suffered CCJs, IVAs, defaults, debt management plans, repossessions or bankruptcies in the recent past.
- Being financially linked with someone. If you applied for a financial product jointly with someone else, you’ll remain “financially linked” with that person until the product is closed. If that person has a bad credit score, it can harm your chances of being approved for other financial products in the future.
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