When applicants are looking for a mortgage, they sometimes run a quick google search to find out “things to do before you apply for a mortgage”. The applicants would find articles on credit scores as the lender’s decision mainly depends on applicants’ credit score. Proper management of credit cards is an essential element to maintain a good credit score!
Some lenders have internal credit scoring systems apart from the information obtained from the credit reference agencies. If applicants have missed recent credit card payments, it could affect their credit score. The lenders with internal credit scoring would even decline the application depending on the capacity and duration of credit card miss-payment.
It is important to discuss any adverse credit card matter with an experienced mortgage adviser. It might even be a small amount that you have missed, still, it would be important to discuss all possible scenarios in detail before submitting a mortgage application.
How do missed or late payments affect the mortgage application?
If an applicant misses a credit card payment, irrespective of the credit card type, it would be reflected on the applicants’ credit file for six years. There is a common misconception that the record would go away once the amount is settled. The record on miss-payment would remain for six years irrespective of how soon you settle the due amount.
When an applicant requests a decision in principle, the lender would review their credit file. It would either be a soft credit check or a hard credit check. It gives an indication to the lender on the potential mortgage payment capability of the applicant. If the credit history is giving a clear picture of the applicants, the lender would be confident to approve their mortgage.
Some applicants have a number of purchases on credit, such as credit cards, personal loans, mobile connections and hire purchase agreements. The high proportion of debt would not create a bad picture in the lender’s mind. However, if applicants have missed any payments, or been late making the minimum monthly credit card payment, this would make things difficult with the lender.
There would be a record on the credit file for every missed or late payment. The more records applicants have the higher risk applicants represent to the mortgage provider. Therefore, applicants should not panic if they have missed a payment and settled it a few weeks later. Most mortgage providers understand that sometimes small mistakes could happen. However, if applicants have made continuous late or miss-payments, lenders would think twice before accepting the application. It is equally important to find a suitable lender with the help of a Bad Credit Specialist Mortgage Adviser, depending on the type of credit card miss-payment the applicants have made.
How does the credit card balance affect the mortgage application?
Affordability, credit score, and criteria are the key factors that determine the success rate of a mortgage application. Mortgage experts comment that criteria are the key for everything. However, the criteria are of no use if the mortgage loan amount is not affordable. Lenders need to verify whether the applicants could afford the monthly mortgage payments.
The affordability calculation depends on various factors such as applicants’ income, age, number of financial dependents, and credit commitments. Most lenders consider the existing credit card balance as part of the maximum loan amount affordability calculation. If an applicant has a large credit card balance, the maximum affordable loan amount goes down by a huge margin.
For example, if there is an applicant with income above £50,000 planning to purchase a new residential property and he has a £15,000 credit card balance, the usual 4.5 times income multiple doesn’t work to calculate the maximum loan amount availability. The credit card balance makes a significant difference in the loan amount affordability.
An experienced mortgage adviser would always explain to the applicant, the loan amount available with and without a credit card balance. Then the applicant could make an informative decision based on his capability to bring down the credit card balance to increase the loan amount affordability. Simply, lower the credit card balance, higher the loan amount affordability.
Applying for debt consolidation to settle existing credit card balance
When applicants re-mortgage the properties towards the end of their fixed deal periods, they often consider raising extra equity from the property to settle the credit card balance. If the applicants have credit card mispayments, it would be difficult to find a lender who facilitates re-mortgage with extra cash for applicants with adverse credit.
One advantage of a debt consolidation application is that some lenders do not consider the existing credit card balance if the reason for raising extra cash is to settle the outstanding balance. It could work in favor of the applicants in terms of calculating the maximum loan amount affordability.
In conclusion, proper management of credit cards is essential to maintain a good credit score and submit a successful mortgage application. If an applicant is using multiple credit cards and struggling to settle the balance and even gone through late or miss payments, it is highly recommended to speak to a mortgage adviser with experience in this line of work.
As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments
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