Does Bad Credit Affect Applications For Mortgages?

Bad Credit is another way of describing a negative credit
score. A credit score can be either good or bad and is used by
lenders to determine whether you are likely to be able to keep
up the payments on something like a mortgage.

Your credit score is calculated using a mathematical formula
and information from banks or lenders from who you have had a
loan of some sort. The formulae and reports consider your
bill-paying (credit) history and compare it alongside the
credit history of millions of other people. The resulting
figure is used as a `risk assessment' by potential lenders.
This in turn can have either a negative or positive effect on
your future borrowing.

A good credit score will typically be given when someone has
borrowed money, but made all the payments back and on time,
without any defaults. This person will be looked at as a
potentially desirable customer as there is little risk involved
in their paying back the loaned money. Applications for loans,
or remortgage and mortgage applications, should be approved
relatively quickly and a good rate of interest offered.

A bad credit score will typically be given to someone who has
been unable to make payments on time in the past. They may have
defaulted on a loan, had a County Court Judgement made against
them or even been declared bankrupt. Credit cards, existing
loans and other indications of your bill-paying history can be
taken into consideration, generally over a two-year period,
although bankruptcy can influence a credit score for much
longer.

Current and potential earnings are also factors that help
determine a credit score. Lenders for such things as a mortgage
or remortgage will view anyone with bad credit as a potential
risk and the interest rates offered will usually reflect that
risk by being much higher. Some applications may even be turned
down.

Some lenders specialise in bad credit mortgage arrangements or
remortgage schemes for those with bad credit histories, but it
is advisable to research the intricacies of these propositions
before going ahead with them. Different lenders operate
different policies and it is worth `shopping' around to see if
they offer facilities to pay more when finances allow, or even
so-called `payment holidays'.

As the credit score is based on ever-fluctuating factors, it is
possible for someone with bad credit to alter their score over a
period of time and affect it positively, thereby lessening
themselves as a risk in the eyes of lenders. Careful financial
management is required: the meeting of repayments on time,
paying off outstanding debts and generally `keeping an eye' on
all things financial can raise a bad credit score into the
positive bracket.

A copy of your current credit score is obtainable and it should
be checked to see that the information determining a score is
accurate. Some people with bad credit may be suffering
unnecessarily under the influence of debts that have actually
been paid off or even discover themselves to be the victims of
identity theft, where someone else is using their bank details
for their own purposes – consequently damaging their credit
score as well as stealing from them.

About The Author: Tom Mead is a qualified mortgage advisor
writing http://www.crystalclearhomeloans.co.uk/NEWS/news.html
mortgage news editorial helping people
http://www.crystalclearhomeloans.co.uk remortgage with adverse
credit.

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