When a lender assesses an application, one of the main factors they look at second to only income and affordability is credit status and risk. Credit reports are good for gauging how a potential applicant might behave with paying the mortgage ongoingly. Clients that apply who have kept a spotless credit record will endeavour to protect their spotless credit report by making sure payments are made on time every month, so this is used in conjunction with assessment of income and affordability to underwrite the case, endeavouring to ensure that the lending is as secure as possible.
From the analysis of credit reports over the years they have existed for, it has been found that clients who have poor credit (which has not been caused by a sudden major event in their life) have got used to paying their credit poorly, and may continue to do so for any new credit taken out in the future .
For this reason many lenders (especially standard high street lenders) will turn down applications with adverse credit showing on the applicant’s credit report. This has given rise to the formation of niche lenders who will lend to clients with varying degrees of adverse credit, and this is usually reflected in the interest rate depending on how severe the adverse credit is. It will also have an affect on how much the lender will lend towards the property - the heavier the adverse the more deposit will be needed to secure the mortgage.
Lenders take the view that the more of their own funds the applicant has invested in the property, the more chance they will pay the mortgage as more of their own money is at risk if the property was ever repossessed. A higher interest rate covers the cost of any bad debts that are estimated to accrue from lending to applicants with adverse credit.
County court judgments
A County Court judgment (CCJ) is a court order which tells you to pay money you owe to a debt. It’s one of the actions your creditors can take as part of the debt collection process.
If you receive a County Court claim form you have just over two weeks to respond. It’s very important to respond in the timeframe given, as if you don’t, the court could order you to pay the debt back at a rate you can’t afford. This could lead to further enforcement action.
You can only receive a CCJ in England or Wales.
Lenders will look at the date the CCJ was registered and how large it is. Another factor will be if the CCJ is still outstanding or if it has been satisfied. If satisfied, this will go in the applicant's favour with a select amount of lenders.
A default is usually registered on your credit report when a payment has reached a total of 8 payments missed. The company you owe the money to will issue a letter for default and register this on your credit report as a default, The entry will show the date registered and amount of the default. If you pay off the default it will show in the credit report as satisfied along with the date this took place. Lenders will base decisions on how new the default is, the size of the default, and whether it has been satisfied or not .
All adverse credit will be removed from your credit report six years after the date it was registered.
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