If you’re earning a decent income but have a bad credit score or shaky credit history, does that exclude you from getting a new mortgage?
Getting a mortgage is a life goal for many people, but those with bad credit often worry that they’ll waste their time applying for a mortgage or will get a terrible rate/deal because their credit history is less than perfect.
According to Statista, mortgages account for a large portion of outstanding debt in the UK.
But planning with the help of a mortgage advisor can help you apply for a mortgage that won’t become a financial noose in the end.
The fact of the matter is that you may have a bad credit score but changed your financial situation since.
Even with a high income, your bad credit rating will remain for a certain period.
This leaves many people on high incomes still saddled with poor interest rates or limited options because of poor credit scores.
That said, you will still have options, but they’ll be impacted by how recent your financial issues have been and how severe your bad credit score is.
Depending on how extreme your situation is, you may need to approach a specialist lender that deals with bad credit mortgages or work on your credit score before applying for a mortgage once more.
Consulting with a mortgage advisor on bad credit good income mortgages can also help you to determine the best course of action for you.
Why a Healthy Credit Record Is Important
When applying for any sort of credit, the lender will assess your credit report to determine if you’re a suitable candidate or not.
The information found on your credit report will indicate whether or not you’re a risky candidate.
Mainstream lenders will rely heavily on your credit score when determining creditworthiness.
If you have a bad credit score but a good income, using a bad credit mortgage specialist or adverse credit lender may benefit you, as they don’t assign a credit score when assessing the viability of your mortgage application.
That doesn’t mean that adverse credit lenders won’t look at your credit score, but rather that they will consider other mitigating factors, such as your current earnings and how you currently handle your accounts.
Credit records provide potential lenders with an overview of your financial history, such as the money you’ve borrowed and how you’re repaying it, accounts you have and how they’re being managed and so on.
Your credit report will include details of your car finance, personal loans, credit cards, and store accounts.
In addition to this, your credit report will include additional details such as bankruptcy or county court judgements against you.
Are There Different Types of Credit Checks?
Lenders will carry out one of two types of credit checks: soft or hard.
If you’d like a DIP (decision in principle), the lender will carry out a soft credit check.
This helps them determine how much they could lend you based on the information in your credit report.
This includes no further checks, so cannot guarantee an approved loan.
If the lender uncovers other information on you when processing the final mortgage application, you may still receive a rejection/denial. Soft credit checks aren’t visible on your credit report.
The hard credit check is more thorough and is done at some point during the mortgage application, even if a soft credit check has been done before this.
A hard credit check will appear on your credit report, and some lenders view multiple hard credit checks as a sign of a risky borrower.
Is Credit Score the Sole Deciding Factor?
You may wonder if your credit score is the only factor that will influence the outcome of your mortgage application, and the answer is no.
Lenders will look at several things when determining if you’re a suitable borrower, with credit score being just one factor.
Other influencing factors include the following:
Lenders will want to see how much you can afford to pay out each month, which means they’ll need to see proof of income.
If you’ve got a high income but apply for a mortgage that will exhaust all your available cash flow, you can still expect to get a negative outcome.
Applying for a mortgage that your income shows you can comfortably afford is one way to avoid possible mortgage rejection.
Your Monthly Expenses (aka, outgoings)
As important as your income is, so are your monthly expenses.
In addition to your mortgage instalment, you may have other expenses that you pay out each month, such as your vehicle instalment, insurance, daycare, household bills and services, and so on.
Lenders will compare your expenses with your income to determine the risk involved.
Source of Income
Earning sufficient income each month is one factor, but how you earn it is important, too. For instance, stability is important to lenders.
They will want to see that you can sustain your income for your contract.
If you’re employed, you can provide your payslips, or if you’re self-employed, you’ll need to provide your company’s financials along with your bank statements or latest tax returns.
History of Prior Mortgages
If you’ve had a mortgage before or currently have one, lenders will investigate to see how you handled the payments.
If your payments were on time every time, this will show on your credit report.
Any lapses in payments or bad notes on how you handle your existing or prior mortgages can work against you.
How Much You Must Earn to Get a Mortgage
There’s no set amount that any person should earn in order to qualify for a mortgage. It comes down to how much you can afford to borrow.
Lenders will consider any income amount when determining the viability of a loan application. Mainstream mortgage providers will typically provide you with between 3 and 5 times your annual income.
This is if you have good credit. If you have bad credit, you may find that lenders are only willing to offer you less, providing you with the opportunity to prove yourself.
A high income will not negate a poor credit score, but may improve your options as you can put down a higher deposit.
What is a Bad Credit Score?
There’s no specific number that determines a high or low credit score.
That’s because every credit bureau calculates their scores differently.
Some mortgage providers that deal with adverse credit borrowers won’t score you.
As such, a credit score is a health indicator of your overall finances.
It’s a good idea to get your credit report from the leading bureaus such as TransUnion, Equifax, and Experian, so you know what mortgage providers might see when they carry out a credit check on your name.
A bad credit score will limit your options, but won’t necessarily exclude you from getting a mortgage.
Unfortunately, poor credit scores may mean lower mortgage amounts are available to you, or you’re offered a higher interest rate.
Sometimes, the lender may request a higher deposit amount to secure the deal.
Reasons for Poor Credit Scores
There are many reasons why you may have a poor credit score.
Some of these include:
- Late and missed payments on store accounts, loans, credit cards, and utility bills.
- Going into overdraft on your credit card or bank account without having an approved overdraft facility on your account.
- Using a large percentage of your available credit on your credit card.
- County court judgements against you.
- Individual voluntary arrangements that are still in progress.
- Bankruptcy that’s been active within the past 6 years.
- Multiple hard credit checks on your name, showing that you’ve been struggling with debt and have been seeking out more lines of credit.
- Being linked to a person who has bad credit, such as a marital partner who you have a mortgage or loan with.
- Incorrect information on your credit report (which can be corrected directly with the credit bureau).
How to Secure a Mortgage with Good Income but Bad Credit
There are several things you can do to secure a good deal if you have a poor credit score but a good income.
Some options include:
- Saving up a higher deposit than the standard requested amounts.
- Minimising your debt and outgoings by closing unnecessary accounts and paying down debt.
- Invest in a cheaper property to reduce the amount you need to borrow.
- Use an adverse credit mortgage provider that won’t base its decision on your credit score.
- Settle your CCJs and IVAs to clear your credit and show that you’re making an effort to get back in good financial standing.
- Ensure your accounts, loans, and lines of credit are paid in full and on time.
- Use a mortgage advisor who can ensure that you’re making sound financial decisions that are best-suited to your financial situation.
Can You Get a New Mortgage with Good Income But Bad Credit? Conclusion
Having a high income doesn’t automatically qualify you for a mortgage or the best deals, especially if you have a bad credit score.
Mainstream lenders may view your poor credit as a red flag that you don’t handle credit properly.
Working with a professional mortgage advisor can help you apply with mortgage providers most likely to assist someone with poor credit.
Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.