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Adverse credit – Why it pays to be honest

by Sarah Halloran

It’s getting increasingly difficult to get a mortgage these days even if you are simply looking to switch existing borrowing to a new property. Due to the current economic climate, banks are quite sensibly revising their lending criteria and choosing borrowers very carefully.

Part of the arduous mortgage application process involves a credit check and this is where so many mortgage applicants are declined.  Proof of income, employment status, and credit worthiness are thrown into the application mix to create what can often seem like a really tough and to some unfair process.  The simple fact is the banks want to be sure you can pay the money back.  Before you begin the mortgage application process,  it’s really important that you understand the implications of making an application and the agreement you are entering into.

Even if you have been with a lender for years and want to extend your borrowing you will usually need to undergo further credit checks.  After all, your circumstances may have changed or you may have acquired some adverse credit on your credit record since your last application.  One of the most frustrating things about the credit check is that lenders often refuse to tell you why you were refused a mortgage.  This is frustrating on two counts.  Firstly, you are being declined the chance to buy the house of your dreams and secondly you have no idea how to go about rectifying the situation.

Of course, if you know you have adverse credit then you should be honest and make sure you mention this in the appropriate area on your application form or if you are using a mortgage broker, let them know so they can scour the market for lenders who are most likely to consider your application.  Most lenders prefer an absolutely clean credit file or at the very least a file with no late payments or arrears within the last 6 months.

There are some lenders who will give you a mortgage if you have adverse credit, but they will often do so at a premium rate.  They need to protect their interests as they see you as more of a risk than somebody with a clean credit record.  This option might work for you, but you need to go in with your eyes open and make sure you really can afford to meet the monthly repayments.

The best way to avoid the disappointment of a declined mortgage is to check out your credit file before anybody else does.  This will give you the opportunity to resolve any conflicts or misinformation on your file or to wait a few months before you make an application.  Remember, every application you make is recorded on your file too and you will look unfavourable to lenders if you have made many applications over a short space of time.  There are many ways to check your credit file online and for a relatively small fee.  You could save yourself a huge amount of money, time and anxiety in the process.

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