What is classed as bad credit I think is very good question and one which I think it is worth looking into.
We regularly speak to people who had a late payment and think it is the end of the world. We also speak to people with multiple defaults who think it is minor because they have not been bankrupt or had any CCJs. Lets look into a little more…
What are the types of Bad Credit?
Bad credit typically falls into one of the following:
- Late payments/Arrears – This will appear on your credit report as a 1, 2, 3 4, 5, 6. 1 means late missed, 2 means 2 missed payments and so on.
- Defaults – This will usually show as an 8 on your credit report.
- CCJs – These are usually listed below the credit history.
- Bankruptcies/IVA/DRO – Would also normally be listed below the credit history. Although you may find you have defaults because of the insolvency.
- DMP – A DMP would not normally be shown on your credit file, although you may find you have arrangement to pays showing on your credit file.
What do lenders class as bad credit?
As with pretty much anything in our industry, this varies from lender to lender. Some lenders will not accept anything more than 1 Default or CCJ in the last 6 years. Others have no limit on the value or numbers. Most lenders however would somewhere in the middle.
What do Mortgage Success class as bad credit?
There is no cut and dry answer to this. Someone who has a £50 default from 5 years ago is strictly bad credit, but we would expect to get you placed on the high street.
We would generally say if you have one default or CCJ over 4 years old or the odd status 1 over 12 months old would not be classed as adverse.
We are usually looking at 2 things:
- How many instances are there? The more negative markers there, the more severe we would usually class the adverse. 2 Defaults and a number of late or missed payments and you will be in the adverse category. However this also needs to taken into account in conjunction with…
- How recent is the adverse? As mentioned earlier in the post, a one off late payment and a default from 5 years ago should be easy enough to overcome. If those 2 are only 12 months ago then we would be more likely to class it as adverse.
It is the 2 points that go hand in hand which will determine whether or not we would class you as having adverse.
Next steps
When it comes to adverse, the devil is in the detail. Even if you are classed as having bad credit, there is still a possibility we can get you a “normal” mortgage. It is always useful to have a phone call as we can normally tell you within 10 minutes if we can get you a mortgage and what the likely rates will be.
You can see some examples of people we have helped with our Success Stories.