Bad Credit Commercial Mortgage – Interest only terms

What is an adverse credit mortgage?

Sub-prime mortgage products allow borrowers with adverse credit history, non-status credit history, sub-prime credit history, impaired credit history, poor credit history, and bad credit history to qualify for a mortgage loan.

Important information about credit scoring:
Credit scoring is used by lenders and organisations credit applications for credit cards, personal loan applications, mortgages, lease purchases, mobile phones and even for subscriptions to mail order catalogues.  The credit score includes detailed records of the relationship an individual has established with the lender or other creditors.

A low credit score may affect your
chances of getting a loan approved

The actual credit score mortgage lenders use is a complex statistical expression from all credit data on the individuals credit file along with factors such as the applicant’s income, time in employment and linked residential address history. The score reflects applicants overall creditworthiness to the proposed lender, and lenders credit score pass marks vary in accordance to the type of mortgage product they can offer.

The credit score takes into account a range of factors these include payment history records, available credit limits, outstanding credit balances and ratios of credit balances in relation to agreed credit limits.  Late, missed and overdue credit, loan or mortgage payments will significantly affect the credit score and will affect an individual’s creditworthiness when applying for a mortgage.

If any creditor needed to make actions to recover overdue debts, there may be notices of defaults or county court judgements recorded on the credit file.  An Increase occurrence of missed or late credit payments, loan or mortgage payments would indicate increased financial risk on proposed additional borrowing.

Improving or repairing credit history when applying for a mortgage

There are ways to improve or repair your credit history over time. It is useful to have some understanding how lenders and credit organisations use credit scores when evaluating potential borrowers risk to bad debt. Mortgage Lenders use different credit scoring methods and varying credit scores minimum with particular mortgage products.

As brokers we do have access to lenders criteria as to the type and classification of adverse credit they will accept on particular products and mortgage schemes.  Some lenders for example will ignore credit card balances, allow unlimited CCJ’s or mortgage arrears on sub-prime and adverse credit mortgage schemes.

Some companies offer to repair credit or offer credit score boosting services. While it may be possible to improve your credit score through various techniques some credit repairing practices may involve fraudulent activities.

It may be possible to optimise your credit rating through some simple good credit housekeeping. Having balances on credit cards up to the maximum available limit indicates financial difficulties. Try to keep balances on credit cards within 1/3 of the available credit limit. Applying for too many lines of credit will also adversely affect your credit score. Make sure that goods or services you sign up for does not involve a hard pull credit search and leave several months between applying for credit and ensure all credit contracts are paid ontime.

Where there are registered county court judgements (CCJ’s) or mortgage arrears, and  missed and consecutive late credit payments then a longer term plan to recover credit rating is required. If the registered debts are not correct as a result of fraud then these need to be taken up legally with the credit issuer and credit referencing agency to get the judgement removed from your credit file.

Does the purpose of the loan may affect the lenders decision?
If applying for increased credit on a remortgage the lender would also consider the purpose for additional borrowings as an impact on the financial risk. If for example the loan is for a luxury item likely to increase financial liability or exposure e.g  a motor vehicle or leisure yacht. If on the other hand the proposed increased in borrowing is to be used to consolidate other borrowings such as clearing outstanding balances on credit cards, this should have positive effect on disposable income and consequently increase ability to repay and service debts in the future.

Loans for Home Improvements may also affect the risk of lending and chances of lender approving the loan. Improvements to the security property would potentially reduce the lenders risk as enhancements made to the security property would increase the value of the property, lowering the loan to value of the debt.