Tips to get around a less than perfect credit score and profit from property
Investing in property has proven to be many people’s road from rags to riches. Many who would make very successful property investors falsely believe they will never be able to invest because of their bad credit history. If this sounds like you, this article will offer you advice and tips on how to invest in property even if your credit score is ‘not up to par’.
You can’t invest in property with a bad credit history – exploding the myth
If you go direct to the biggest banks, you’re unlikely to get past their gatekeepers with a subpar credit score. But not all lenders have the same lending criteria. Specialist buy-to-let lenders refer to investors with less than perfect credit scores in a variety of ways. These include ‘sub-prime’ for those with the worst credit records through to ‘near-prime’ for those with trivial deficiencies.
What affects your credit rating?
I haven’t spoken to a single investor who has a 100% perfect credit score. So, if your credit history is less than perfect, you’re in the same boat as every other property investor I know. Common reasons for impairment to credit scores include:
- Continually missing or late payment of credit accounts (such as credit cards and personal loans)
- A creditor writing off what you owe, because you were unable to repay your debt (known as credit defaults)
- Large debts outstanding, especially uns
- County Court Judgements (CCJs)
- ecured loans, credit cards, and store cards
- Bankruptcy and individual voluntary arrangements (IVAs)
Lenders’ criteria for accepting you as a buy-to-let mortgagee range from low-level infractions to very relaxed policies. The most important issues are considered those that have happened in the last twelve months.
Improving your credit score
There are some strategies that you can put in place immediately to help improve your credit rating. The first thing to do is to check your credit score. All the credit referencing agencies will provide this information for you, and you can obtain it instantly online. The important items to consider on your credit reference are:
· Uncancelled credit facilities which you don’t use
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Out-of-date information is frowned upon by lenders. So, check that your address is up to date and that any credit facilities you no longer use are cancelled. Lenders don’t like to lend to people that could overextend easily.
· Errors on your credit history
Credit referencing firms are not infallible. They make mistakes. If you spot an error – such as an account marked as late payment when it has been paid in full, request that the credit reference makes the necessary changes.
· Items which require further explanation
Another common cause of an impaired credit score is where a late payment has been caused by circumstances beyond your control. For example, perhaps your company was late paying your salary one month, and this caused a direct debit to bounce. You should request the credit reference to add a ‘notice of correction’ to your credit file. If you do this, make sure that you ask all credit referencing agencies to do likewise.
· Unrecognised financial items
If you notice a credit facility, credit card, or loan application on your credit file which you don’t recognise, contact the creditor immediately. You could be the target of fraudsters. The creditor will be able to review the application, and alert the credit referencing agency accordingly.
Other ways to improve your credit score include:
- Make sure that all your accounts are registered at the same address
- Stay up to date with payments
- Equalise accounts that are in arrears, and get them up to date
- Take care when applying for credit – the lender will search your credit history, and every time they do it marks on your credit score. Lenders become suspicious of people who make multiple credit applications in a sort space of time
How to find the best buy-to-let mortgage product
As we’ve explained, the reasons for a low credit score can be tackled. You can take steps to build your credit history. But it’s also important to apply to the lender who is most likely to lend to you. The problem is, you won’t know what their credit score criteria is until you apply. And every time you apply and the lender checks your credit score, and it’s a black mark on your credit score!
It is why it’s imperative to use a mortgage broker experienced in the buy-to-let market when you are investing in property. You can check your credit score, and they will know which is the most likely lender to offer you investment financing. You’ll save time. Money, and a whole lot of frustration.
What if you don’t have a credit score?
“Hey, I’ve never been in arrears. I’ve never missed a payment because I’ve never borrowed money. I don’t have credit cards, and I’m not in overdraft.”
If you’ve never had credit, lenders could be even more worried about lending to you. They don’t know how you control your budget and have no history of you making repayments to creditors. You may need to build a credit history by:
- Registering to vote
- Get a mobile phone
- Get a UK bank account
- Get a credit card (make small transactions, and pay off in full every month)
Where do you find the best buy-to-let mortgage broker?
Finding a mortgage broker with the right experience and contacts in the industry to get you the best mortgage to invest in property can prove difficult. The mortgage brokers we work with have helped hundreds of investors like you. They keep up-to-date with lenders, their products, and lending criteria. If your credit history is less than perfect, they’ll be able to advise you and source financing from the most appropriate lenders.
Contact one of the Gladfish team today on +44 207 923 6100. We’ll be happy to discuss how you can begin building a property portfolio to achieve your unique lifestyle goals and take steps to negate a previously poor credit history.
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