Falling behind on unsecured loan payments such as credit cards or personal loans will likely impact the chances of being accepted for a mortgage with a high street lender. But having unsecured arrears on your profile won’t stop your chances altogether.
Lenders have a variety of criteria when they’re looking at mortgage applications. And each lender’s criteria are different.
The key to a successful mortgage application, even if you have unsecured arrears, is understanding which lender is likely to accept them, and understanding the criteria for their application process.
At Adverse Mortgage Advisors our years of experience combined with in depth knowledge of the lenders that accept applications where there’s a poor credit history gives you a far better chance of being accepted.
Our expertise is such that we’ll only match you with a lender who is the most likely to accept your application, even if your credit history is less than perfect.
Unsecured credit is where no collateral is used to support the loan. With a secured loan such as a mortgage, for example, if you are unable to pay it off your house can be repossessed. If you default on an unsecured loan, your assets aren’t at risk.
However, creditors can still register defaults against you or even apply to the court to issue you with a County Court Judgement (CCJ) to get their payment. These things will negatively affect your credit rating.
With secured arrears, your house, car or other major assets can be taken by the creditors to pay off the debt if you no longer have the ability to pay.
When getting a mortgage with arrears on your profile, it’s the type of arrears as well as the recency of the problem that lenders will be most interested in. More recent arrears are seen as a bigger problem and will reduce the selection of lenders and restrict the amount you can borrow.
To lenders who specialise in adverse credit lending, secured arrears are usually seen as more severe than unsecured arrears.
With Adverse Mortgage Advisors it’s our understanding on lender selection and their specific application process that’s key. We find lenders willing to help you based on your financial circumstances. This means less chance of a rejected application.
The types of loans which don’t usually require collateral as security, and therefore won’t put your assets at risk, are the following:
Most lenders will insist that any current arrears for any commitments are brought up to date before they will consider your mortgage application. This is because they want to see you are on top of your finances and appear less risky to lend to.
It’s important to make sure your accounts are up to date before you start your application. Doing this will also allow for a quicker turnaround and prevent any potential delays.
Improve Your Chances of Getting Accepted with Unsecured Arrears
With our access to specialist lenders, and our understanding of their criteria, using our broker service will give you a better chance of success of getting an application accepted.
We can provide further advice to increase your chances of success. If you have unsecured arrears and you want to apply for a mortgage, speaking with our brokers, who specialise in adverse credit will give you a better chance at finding a suitable lender. Our advisors have the experience, knowledge and understand the requirements of each lender, to give your application a better chance.
If you have questions about getting a mortgage with an adverse credit score, read our FAQs. Our wealth of knowledge within this market means that we’re confident in our ability to offer specialist mortgage advice and secure the mortgage you want regardless of your credit history.
A missed payment is when you have not made your monthly required payment, whereas a late payment is when you have made the monthly payment but not on the contacted date agreed.
For example, the payment should have been made on the 1st of the month but was paid a week later.
Unfortunately, in most cases the creditors will mark this as a missed payment on your credit file, the account will then show as up to date the following month once they have recorded the payment on your account and reported back to the credit reference agencies.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
Your account will fall into default once your account has fallen into more than 6 months in arrears. Remember these do not need to be consecutive missed payments, more than 6 months in arrears and your account will default.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
The amount of missed payments and the credit type of the commitment that was missed will have varying effects on your credit score.
For example, a single missed payment on a utility bill such as water or electricity that is brought up to date quickly is likely to only have a short-term impact on your credit score vs missing a payment on a loan or credit card account which could take several months to recover back to your previous score.
The most important thing to avoid is not having multiple missed payments on different commitments or credit accounts running more than one month in arrears, as this will have a more severe impact on your credit score which will take longer to recover.
This also sends out the message to lenders that you are struggling to maintain your current financial commitments.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
All missed payments can affect your mortgage application and the more recent the missed payment as well as the type of commitment the missed a payment happened on and the number of missed payments you have recorded against you in the past 24 months will have different affects.
If you are looking to apply for a mortgage soon, we highly recommended that all your current financial commitments are up to date as this will demonstrate to potential lenders that you have your current financial obligations under control.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
All creditors that allow you to pay your commitments monthly will report to credit reference agencies that you have either made or missed your payments. This is what builds or affects your credit score.
Missing payments on any financial commitment regardless of whether that be a utility bill, mobile phone to credit card or loan accounts, these will all be recorded on your credit file, and the more missed payments you have recorded against you the bigger the impact this will have on your credit score, and the longer time it will take for your credit score to recover.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
This will depend on how many missed you have had, how many months in arrears the account fell into, and what type of credit commitment the account was for.
High street lenders will likely want all credit accounts to be up to date for at least 12 months before they will consider lending to you.
However, this doesn’t mean that there won’t be lenders available for you as lots of specialist lenders will consider lending to people with even current missed payments. Some lenders even completely ignore missed payments for utility bills and communication accounts.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
The FCA guidelines on what they considered to be credit impaired is when your credit accounts fall 3 months in arrears (also known as status 3).
Your account will then need to be brought up to date for a minimum of 12 months before your credit impaired status is removed.
Once you have been classified as credit impaired this will affect the lenders you can approach as most lenders won’t hold the required permissions to lend to borrowers that are considered as credit impaired. Unfortunately, this means traditional high street lenders or Building Societies won’t be able to consider your application until you account has been brought up to date for at least 12 months.
The good news is that even if you are classified as credit impaired there are still lenders that will consider your application, and this is the reason it is important to work with a bad credit mortgage specialist like us at Adverse Mortgage Advisors, as they will match you with the right lender for your circumstances to give your mortgage application the best chances of being successful.
The best way to not miss payments is to ensure that you have direct debits set up for all your commitments, and the best date to set them up for is the day after pay day, this will ensure that you have sufficient funds available, so no missed payments occur.
