Some mortgage lenders recognise that there is a big difference between people with low credit scores due to adverse credit history (missed payments, CCJ’s, bankruptcy, etc.) and those who have a low credit score because they have had little need for credit in the past. This can make it possible to get a low credit score mortgage.
A low credit score, and a bad credit score, whilst not the same, are often perceived to be synonymous by mortgage lenders. The reason for this is that credit scoring systems simply work off a scoring list, rather than considering the application on the basis of a credit check, which would consider defaults on existing credit, rather than effectively penalising an applicant for having no credit. Therefore, a low credit score can really limit your lending potential- especially for a large loan, such as a mortgage.
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Why does a low credit score penalise me like a bad credit score would?
The problem for lenders is that they are nervous about lending to potential customers who have no proven ability to pay back previous loans or existing credit. But, just as customers might default on their credit, they may also prove to be good borrowers: therefore some credit check agencies, such as Aldermore, look beyond the fact that people do not have a credit history, or have a low credit history.
Aldermore was something of an innovation when it was launched in 2009, in the middle of a credit crunch: it is committed to lending to people who can afford to repay their loans.
The difference between a credit scoring system and a credit check
Most lenders use the well-known credit scoring system, which takes a wide range of financial factors and history in to account to produce an overall score. These lenders will have a minimum score in order to pass the decision in principle. The score is automatically produced by searching credit referencing agency databases, and searches a wide range of factors such as past loans, address changes and adverse credit. People with little credit in the past will be at a disadvantage because there score will be low.
However a credit check is basically a manual review the applications file, which will look for any adverse credit – if there’s none (no missed payments, CCJ’s, etc.), then it should pass to the next stage regardless of the actual low initial credit score and then the applicant may still be accepted.
Ascot Mortgages is very aware of this issue that many people face, especially first time buyers, but their experience and expertise ensures they have access to a small selection of mortgage lenders that will “credit check” rather than “credit score”, as these are the lenders who will consider low credit scoring applicants.
What if I want a mortgage, but have no / low credit history?
- One way that people can improve their credit rating is by ensuring that they are registered on the electoral roll.
- A steady term in an address can help; those who frequently change addresses can often be considered to have a low credit.
- Closing any unused store cards with credit on them can also be a way to improve a low credit rating.
- Consider getting a credit card, to spend a small amount on each month: but only if you can repay it in full!
- A stable relationship with your bank can help: lenders are likely to look favourably on an applicant who has built up a reputation and a history with one bank over a period of time. But do not rush to take out multiple forms of credit quickly: it may read as desperation amongst your creditors!
- Do not keep applying for credit if you have had one application turned down.
- It is possible to ask a relative or close friend to co-sign an application for a smaller loan or credit card, in order to boost your own credit history.
When you are considering applying for a mortgage, make sure that you ask the lender that you fit the profile of the person that they would consider lending to. By doing this, it means that you can make sure you have a fair chance of getting accepted, and it also means that you are not having credit searches done on your file unnecessarily.
How can Ascot Mortgages help me get a mortgage?
Bad credit and low credit are not the same things: but, unfortunately, traditional credit referencing using the same criteria for both, and generates a low credit score. There are ways to improve your credit score, if you have low credit, but it is also a good idea to speak to a mortgage broker, like Ascot Mortgages, who may be able to suggest lenders whose criteria you fit, before applying. Ascot can also manage the application process for you, and bring their expertise to the process, increasing the chances of acceptance.