There are many different ways you can negatively affect your credit history. If you cause enough damage to your credit file you may be forced to apply for adverse credit mortgages when looking to buy or remortgage your home. You should therefore be careful to keep your file clean of impairment as adverse credit mortgages often contain higher fees and interest rates than standard products.
One of the most obvious ways to destroy your credit file is to be made bankrupt. If you do not pay your creditors they can petition the courts to have you declared bankrupt. This will severely affect your credit history in a negative way and could disable you from obtaining all forms of credit for several years.
Similarly, a County Court Judgment (CCJ) may cause an individual to be regarded as heavy adverse when applying for a mortgage. A CCJ will be applied to a person’s credit file if they fail to pay for a debt that a County Court has ordered them to pay. If the individual pays off the debt within a month of the ruling then a CCJ will not be entered onto their credit file and will not result in adverse credit. However if a CCJ is entered onto a credit file it can remain there for up to six years.
An Individual Voluntary Arrangement (IVA) is another scenario that can severely influence a credit file and restrict the individual in question to adverse credit mortgages for many years to come. You should therefore always keep on top of your creditors to ensure that you never need to enter into an IVA.
Despite these obvious issues which can lead to an individual being restricted to adverse credit mortgages to finance their home, there are other less obvious things that people need to be aware of. The first of these is loan arrears. Even if a person does not enter into an IVA or be forced into bankruptcy, accruing loan arrears can result in impairments to a credit file. People who only have a few arrears on their loans would normally be regarded as light to medium adverse by lenders, but this can still force people onto the lender’s adverse credit mortgage books.
A few other less obvious scenarios to consider include changing address too often, not being registered on the electoral role, and not having a credit history to begin with. Lenders like to lend money to people who they consider to be stable as well as having a clean credit history. It therefore helps your cause, if you wish to apply for a standard mortgage product, to remain at the same address for several years or not move around too often.
Likewise, lenders like to know that the person they approve a mortgage to is registered on the electoral role and has some form of a credit history. This helps them to conclude that the individual is alive and worthy of credit.
The above scenarios can adversely affect a person’s credit file – sometimes for years. Therefore if you want to avoid having to apply for adverse credit mortgages you should keep your credit file as clean as possible.
