Moving Home with an Adverse Credit History
Life in the 21st Century can be complicated – and expensive. No matter how careful you are with your money, it can be easy to run into trouble. Unfortunately, when it comes to financial matters, the property industry can be quite unforgiving. Adverse incidents on your credit report can make moving home difficult.
Difficult is not impossible, though. Your options may be a little more restricted if you have a poor credit score, but a solution can still present itself. You may just need to be a little creative – and be prepared to compromise more than you ordinarily would, even if just in the short-term.
What is a Credit Report?
A credit report is a list of all your debts and the repayments that you have made on them. Think of your credit report as a summary of your entire financial history. When a lender conducts a credit check after you apply for a loan or credit card – or, indeed, a mortgage or rental lease – your credit report will play a major role in their decision.
In addition to a list of all your debts, a credit report will assign you a score. Different providers have different totals, so there is no such thing as an ideal score across the board. Experian, for example, assigns a score out of 999, while Equifax caps their scores at 700. This means that a score of 400 is good on Equifax but very poor on Experian.
You should sign up for one of these sites and review your score. You’ll usually be able to get a free trial. Once you have an idea of your credit score, you’ll know how likely you are to pass a credit check with a mortgage broker or estate agent.
How Does a Credit Report Impact a House Move?
Your credit score will become a topic of conversation every time you look to move house. If you are applying for a mortgage, the lender needs to know that you will be able to keep up with the monthly repayments. Similarly, a landlord will ask an estate agent to run a credit check on a potential tenant. They are seeking assurance that the aspiring tenant will not struggle to pay their rent.
If you have adverse incidents on your credit report, you may find that your options for moving are limited. As we discussed, your report will assign you a credit score. Most mortgage brokers or landlords will have a minimum threshold pass a credit check. If your score is too low to meet this bar, complications arise. It’s the adverse incidents that reduce your credit score.
What Qualifies as an Adverse Incident on a Credit Report?
The following are considered adverse incidents on a credit report. Typically, each of these issues remains on your report for 6 years, impacting the score throughout this time.
- Late payments on credit cards, loans or mortgages
- Missed payments on credit agreements. This could be your credit card, a loan, or even your mobile phone bill
- Defaulting on a credit agreement (failing to pay back the full, contracted amount of the agreement)
- County Court Judgments (CCJs) – being taken to court for an unpaid debt and being ordered to make the payment
- Bankruptcy or an Independent Voluntary Arrangement (IVA)
These adverse incidents are a red flag to a lender. They give the impression, whether fair or not, that you have struggled to manage your debts and payments in the past. This means you will be deemed a credit risk – and a mortgage or rental lease is a form of credit agreement.
The good news is that these incidents will automatically fall off your credit report after 6 years, and your score will improve accordingly. Unfortunately, their impact will be keenly felt throughout those 6 years, especially if you’re hoping to move. Rack up enough adverse incidents and your credit score will be too low to meet the minimum threshold of a lender.
There are steps you can take to improve your credit score. If you still have credit cards, keep the balances remain below 30% of your credit limit on every statement. Ensure you are on the national electoral register. Avoid taking on any new debt – each application will lead to a hard credit search, which lowers your score temporarily. Most importantly, keep making your repayments on time.
Can I Still Move if I Have a Bad Credit History?
As discussed, lenders are dubious about taking on accounts with individuals with poor credit history. If you do not need to move, give serious consideration to staying put while you rebuild your credit score. You’ll have many more options when you’re in a stronger position.
Sometimes, though, moving is not a choice. If that’s the case, you’ll need to find a way around your credit issues. If you are renting, this will typically involve the necessity of a guarantor. A guarantor is a third party, usually a family member, that agrees to pay your rent if you are unable to do so. This individual will need to sign a contract to this effect and will automatically be charged for any rent payments that you miss.
Mortgages are a little more complicated. If you have a poor credit history or any CCJ, bankruptcy or IVA on your record, high street lenders will not lend to you. Don’t waste your time trying – they have a flat policy of saying no, regardless of the circumstances, and most of the time you won’t even get past the first phone call.
If you enlist the services of a specialist mortgage broker, however, you may be able to access a speciality lender. Some lenders specialise in helping people with bad credit find a mortgage.
Naturally, this will come with caveats. The interest rate will be higher than what you’d find on the high street, and you’ll likely need to pay a much higher lump sum deposit – possibly as much as 30% – than you would through a more mainstream lender. All the same, it is possible to move with an adverse credit history. Just do not expect the process to be quite as smooth as it ordinarily would be.