Reports state that 1 in 5 people in the UK have poor credit, with a fifth of adults not expecting to add to their savings this year. So is Remortgaging when you have bad credit possible?
However, given the turbulence we’ve seen since the mini-budget in 2022, it’s understandable that people are feeling nervous when it comes to their remortgage rates. Add to that the cost of living crisis causing people to borrow more and save less, the current climate is undoubtedly affecting credit scores nationwide.
Teon Leggett from Suffolk-based mortgage advisors, Lendese (formerly known as The Mortgage Link), offers advice on how to prepare for your remortgage, even if your credit score has dropped.
Know your credit score
Before researching any long term lending deal, such as a mortgage, it’s vital for people to know where they stand when it comes to their credit score. By using a reputable provider such as Equifax, Checkmyfile, TransUnion or Experian it can highlight where there may be work to do in preparation for a mortgage renewal.
Scoring can differ between each provider, however, knowing your scores provides an insight into what lenders will see when they start reviewing accounts and offering new deals.
Most credit scores work on a 5 level system, with the ranges of each bracket differing between them.
- Very good
If recent events have caused a drop in credit score since previous mortgage renewals, then it’s vital to pinpoint where improvements can be made.
Understanding what affects credit rating
Most people will only check their credit score when a big purchase is required, however keeping on top of your score more regularly means work can be done to improve it as you go. There are many misunderstandings of what affects a credit rating but these are some to help as a guide;
Missed, late or defaulted payments can significantly lower a credit score. Lenders review the repayment of any debts, including credit cards and store credit, and also whether the minimum is paid. All of this research helps them to shape whether someone’s financial situation is suitable for a good rate or if there is a risk.
If a person is remortgaging then the repayments on an existing account will be reviewed. Any missed or late payments stay on record for 6 years so it’s important to be aware of these in good time before applying for a new deal. Unfortunately, there is no way to remove these from your record, which makes it even more important to be on top of any other borrowing.
Frequent credit applications
In the current climate, disposable income is increasingly tight for many people, so regularly applying for finance might have started becoming a common occurrence in lots of households. Whether it’s for a new car, a credit card to pay for a holiday, or buy-now-pay-later schemes, this can all negatively impact the shape of someone’s financial situation and cause issues further down the line when looking for lenders.
Tips for repairing a poor credit rating
If you’re finding that your credit score has taken a hit, the first thing to do is not panic, and seek advice from a trusted and reputable financial adviser. Peeling back the layers of what is causing the low scoring may not be a quick fix, but there are ways to improve it over time.
Defaulting on joint accounts and financial ties can negatively impact your credit. Many of us may not check where our details could be linked to previous housemates, ex-partners or even family members.
By understanding this first, requests can be made to credit reference agencies to issue a Notice of Disassociation to let lenders know that you’re no longer financially associated with that person.
In the lead up to your mortgage renewal, monitoring spending and how this impacts outgoings is key. Reducing the reliance on overdrafts and borrowed funds is critical, so your ultimate goal should be to cut back on spending where possible to prove better money management and cinch a better mortgage deal.
- Pay outstanding debts in full
Outstanding debt can cause stress and panic. The irony is that paying off debts in full can lead to a better deal on one of the largest loans the average person is likely to take out in their lifetime.
- Check any errors
Mistakes happen. Fraud can occur. Knowing this can help a person improve their credit score easily if there are errors flagged upon checks prior to applying with a lender. In the digital age, the benefit of seeing everything a lender will see is hugely advantageous, as it allows you to be on the front foot with your finances before applying. The downside to the lack of human element is everything is taken at face value by a lender, even if there are inaccuracies.
Remortgaging when you have bad credit
Despite poor credit being on the up and more people finding it difficult to get a good rate for their mortgage in the current climate, one upside is that a mortgage can actually help a person’s credit rating since it makes up to 10% of a person’s total credit score.
Poorer credit may not allow you to receive the best deals, but there are more ways than you might imagine to evaluate your spending to help make the repayments on your new deal easier.
For more information from an expert mortgage advisor, contact the team at Lendese, who offer impartial and honest mortgage advice for remortgaging, first time buyers, commercial mortgages and bridging loans.