For many people, the words adverse credit immediately bring one thought to mind:
“I probably won’t get a mortgage.”
The reality is often very different.
Life doesn’t always go to plan. Relationships end, jobs are lost, businesses struggle, people become ill and unexpected costs crop up. Financial difficulties can happen to anyone, and having adverse credit doesn’t automatically mean home ownership is out of reach.
Whether you’re buying your first home, moving house or looking to remortgage, understanding your credit profile is one of the most important steps you can take.
At Mortgage Cloud, we help people with a wide range of circumstances every day. This guide explains what adverse credit is, how lenders assess it and what you can do to improve your chances of securing a mortgage.
What is adverse credit?
Adverse credit (sometimes called poor credit or bad credit) describes information on your credit file that suggests you’ve experienced difficulties managing credit or repayments.
That doesn’t necessarily mean you’ve done anything wrong. Sometimes you don’t even realise you have any adverse credit until you want to apply for a mortgage, then you get a copy of your credit report and you see a missed payment for a utility company that maybe wasn’t even your fault, the utility company may have had a technical issue, but that can still impact you. And therefore, sometimes it’s simply the result of circumstances outside your control.
Common reasons include:
- Divorce or separation
- Bereavement
- Redundancy or job loss
- Illness or injury
- Reduced income
- Cost of living pressures
- Business failure
- Unexpected financial emergencies
- Missed payments
Lenders understand that life happens. What they’re usually trying to establish is whether those difficulties were temporary or whether they’re part of an ongoing pattern.
Types of adverse credit
Not all adverse credit is viewed the same way.
Some issues are relatively minor, while others are considered more significant.
Missed payments
Missing one or two payments isn’t ideal, but lenders will usually look at:
- how many were missed
- when they happened
- which account was affected
- whether payments have since been maintained
Older missed payments generally carry less weight than recent ones.
Defaults
A default is recorded when an account has fallen significantly into arrears.
Many lenders will consider:
- how much was owed
- how long it has been since the default occurred
- whether it has been satisfied or not
- whether there have been any further issues since
Defaults remain on your credit file for six years from the default date.
County Court Judgments (CCJs)
A CCJ is issued when a court decides that money is legally owed.
Lenders often consider:
- value of the CCJ
- age of the CCJ
- nature of the CCJ – parking ticket, utility bill etc
- whether it has been satisfied or not – for example unsatisfied below £250 can sometimes be ok and disregarded
- date it was satisfied
- how many CCJs exist
Like defaults, CCJs generally remain visible for six years.
Individual Voluntary Arrangements (IVAs)
An IVA is a formal agreement to repay debts over time.
Many mainstream lenders won’t lend while an IVA is active, although specialist lenders may consider applications depending on the circumstances.
An IVA usually remains on your credit file for six years.
Debt Management Plans (DMPs)
A Debt Management Plan isn’t necessarily recorded itself, but the accounts included within it often show missed payments or defaults.
Each lender has its own criteria.
Bankruptcy
Bankruptcy is viewed as one of the more significant forms of adverse credit.
Some lenders will consider applicants after discharge, particularly where there has been a sustained period of good financial conduct since.
How long does adverse credit affect your mortgage?
There’s no single answer.
Many forms of adverse credit stay on your credit file for six years, but lenders don’t all assess them in the same way.
| Credit Issue | Typical credit file duration |
|---|---|
| Missed payments | Up to six years |
| Default | Six years |
| CCJ | Six years |
| IVA | Six years |
| Bankruptcy | Usually six years |
More importantly, lenders often place greater emphasis on how recent the issue was.
A satisfied default from five years ago may be viewed very differently from a default registered three months ago.
How do mortgage lenders assess adverse credit?
Lenders don’t simply tick “yes” or “no.”
Instead, they build a picture of your overall circumstances and use their own internal credit scoring systems. Every lender is different in how they score and may use information from one or all 3 credit reference agencies to profile you and make the credit risk assessment. Equifax, Transunion and Experian. (Having all 3 is key to seeing the whole picture).
This might include:
- the type of adverse credit
- how recent it was
- how much was owed
- whether debts have been repaid
- your current income
- affordability
- employment
- deposit size or equity
- overall financial conduct since
- even the lack of credit information, like no credit card or payment history can negatively impact the scoring
Every lender has different lending criteria. (Credit scoring systems)
That’s why two lenders can make completely different decisions based on the same application.
Can you get a mortgage with adverse credit?
Usually, yes, but choosing an impartial broker gives you more chances as they have access to lenders some restricted/panelled brokers do not have.
Many people are surprised to discover they still have options.
While some high street lenders have stricter lending policies, others are more flexible, and there are specialist lenders who focus on customers with more complex credit histories.
The right lender depends on your individual circumstances rather than simply your credit score.
High street banks vs specialist lenders
High street lenders often work well for customers with straightforward credit histories, however more and more are looking at ways to help more people in such situations.
However, adverse credit doesn’t always fit neatly within standard lending policies.
Specialist lenders may be able to consider:
- recent defaults
- historic CCJs
- previous IVAs
- debt consolidation
- self-employed applicants with adverse credit
- complex income
That doesn’t automatically mean higher rates or that a specialist lender is the right option.
A good mortgage adviser will compare the available options and explain the pros and cons based on your circumstances.
Why speak to a mortgage adviser early?
One of the biggest mistakes people make is waiting until they’ve found a property before asking for advice.
Speaking to an adviser early can help you:
- understand what’s possible
- identify any issues before applying
- avoid unnecessary credit searches
- improve your chances of being accepted
- plan for future applications if you’re not quite ready
Whether you’re purchasing, remortgaging or considering debt consolidation, early advice can often save time, money and disappointment later.
How Mortgage Cloud can help
Finding the right lender can become much more complicated when adverse credit is involved.
Rather than approaching lenders individually, a mortgage adviser can assess your circumstances and identify lenders whose criteria may better suit your situation.
At Mortgage Cloud, we take the time to understand your circumstances before making recommendations. Every case is different, and our advice is tailored to your individual needs and objectives.
If you’re unsure where you stand, we’d much rather have a conversation early than see you make an application that could have been avoided.
Steps you can take before applying
While every situation is different, these simple steps may help strengthen your application:
- Register on the electoral roll.
- Keep up to date with all current payments.
- Avoid taking unnecessary new credit before applying. (but a good broker will let you know if you need to increase your credit profile, you can be declined for lack of credit history.)
- Check your credit report for errors.
- Reduce outstanding balances where possible.
- Avoid multiple mortgage applications.
- Speak to a mortgage adviser before making major financial decisions.
Even small improvements can make a difference.
Check your credit report before applying
One of the best things you can do is understand exactly what lenders are likely to see.
We recommend checking your credit report before applying for a mortgage.
Mortgage Cloud has partnered with Checkmyfile, allowing you to access a free trial of your credit report.
A Checkmyfile report combines information from multiple UK credit reference agencies, giving you one of the most comprehensive views of your credit history.
It can help you:
- identify errors
- spot old defaults or CCJs
- understand your current credit profile
- prepare for conversations with your mortgage adviser
Start your free Checkmyfile* trial here:
https://www.checkmyfile.partners/HBWSSGW/FGXLG/
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Frequently Asked Questions
Does a low credit score mean I can’t get a mortgage?
Not necessarily.
Many lenders look beyond a single credit score and instead assess your overall financial circumstances.
Will applying for lots of mortgages improve my chances?
Usually not.
Multiple applications in a short period can sometimes make obtaining a mortgage more difficult.
Getting advice first can help you avoid unnecessary applications.
Can I remortgage with adverse credit?
Potentially, yes.
Your options will depend on your current lender, your equity, affordability and your recent credit history.
Can I consolidate debts into my mortgage?
Sometimes.
Debt consolidation isn’t suitable for everyone and can increase the total amount you repay over the life of your mortgage, even if your monthly payments reduce.
A mortgage adviser can explain whether it’s appropriate for your circumstances.
Should I wait until adverse credit disappears?
Not always.
Some lenders may consider applications well before adverse credit has disappeared from your credit file.
Speaking to an adviser can help you understand what’s realistically achievable.
Useful organisations and support
If you’re experiencing financial difficulties, you’re not alone.
These organisations provide free guidance and support:
Seeking help early can often prevent small problems from becoming much bigger ones.
Ready to discuss your options?
Having adverse credit doesn’t automatically mean you can’t get a mortgage.
The earlier you understand your options, the more informed your decisions can be.
Whether you’re buying your first home, moving, remortgaging or simply want to understand where you stand, Mortgage Cloud is here to help. Call 03300 100 055 for a free, no-obligation conversation with one of our advisers.
Important Information
As with all mortgage applications, approval is subject to status, affordability, credit assessment and lender criteria.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The precise amount will depend upon your circumstances.
Think carefully before securing other debts against your home/property.
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