Yes, a bad credit score can affect remortgaging, but it does not necessarily prevent you from being approved.
While there isn't a single universal credit score required for remortgage approval, a lower credit score can significantly impact the number of mortgage lenders willing to accept your application. However, it is still possible to remortgage even with a 'poor' or 'fair' credit rating, often by exploring options with specialist lenders.
How a Bad Credit Score Impacts Your Remortgage
A less-than-ideal credit score can influence your remortgage in several ways:
- Fewer Lender Options: Mainstream lenders typically have stricter lending criteria. A poor credit score might lead to your application being declined by many high-street banks and building societies, limiting your choices.
- Higher Interest Rates: Lenders view applicants with lower credit scores as higher risk. To compensate for this perceived risk, they may offer remortgage deals with significantly higher interest rates. This means you could end up paying more over the life of your mortgage.
- Stricter Terms and Conditions: You might face less flexible terms, such as higher arrangement fees, larger required equity, or shorter mortgage terms.
- Lower Loan-to-Value (LTV) Ratios: Lenders might be willing to lend a smaller percentage of your property's value, meaning you'd need more equity in your home to qualify for a remortgage.
- More Scrutiny: Lenders will conduct a more thorough review of your financial history, potentially asking for more documentation or explanations for past credit issues.
Understanding Credit Score Ranges
Credit scores are typically categorized into ranges that indicate your creditworthiness. While these ranges can vary slightly between credit reference agencies, here's a general guide:
| Credit Score Range | Credit Rating | Implication for Remortgage |
|---|---|---|
| 0-560 (Experian) | Very Poor | Very challenging; specialist lenders needed. |
| 561-720 (Experian) | Poor | Limited options; higher rates likely. |
| 721-880 (Experian) | Fair | Possible, but may still face higher rates. |
| 881-960 (Experian) | Good | Generally good options available. |
| 961-999 (Experian) | Excellent | Best rates and widest choice of lenders. |
Note: Ranges are illustrative and can vary by credit reference agency (e.g., Equifax, TransUnion).
Strategies for Remortgaging with Bad Credit
Even with a poor credit score, there are steps you can take to improve your chances of securing a remortgage:
- Understand Your Credit Report: Obtain copies of your credit report from all three major credit reference agencies (Experian, Equifax, TransUnion). Check for any errors or inaccuracies that could be negatively impacting your score and dispute them immediately.
- Seek Specialist Lenders: Many mainstream lenders may decline applications from individuals with bad credit. However, there are specialist mortgage lenders who specifically cater to borrowers with adverse credit histories. They are often more flexible, looking at your current financial stability and the reasons for past credit issues rather than just the score itself.
- Demonstrate Affordability: Lenders will want to see that you can comfortably afford your new mortgage payments. Ensure your income is stable, and try to reduce other debts. A detailed budget showing your ability to manage finances can be helpful.
- Increase Your Equity: If you can increase the equity in your home (e.g., by making overpayments on your current mortgage or if your property value has increased), it can make you a more attractive borrower, as it reduces the lender's risk.
- Seek Professional Advice: A mortgage broker specializing in bad credit mortgages can be invaluable. They have access to a wider range of lenders, including those not available directly to the public, and can help you navigate the complexities of remortgaging with adverse credit. They can also advise on how to present your application in the best possible light.
- Consider a Secured Loan (as an alternative): If remortgaging proves impossible, a secured loan (second charge mortgage) on your property might be an alternative for raising funds, though it comes with its own risks and costs.
Improving Your Credit Score Before Applying
If time allows, focusing on improving your credit score before applying for a remortgage can significantly enhance your options and secure better rates:
- Pay Bills on Time: Payment history is a major factor in your credit score. Ensure all loan, credit card, and utility payments are made punctually.
- Reduce Credit Utilization: Try to keep your credit card balances well below your credit limits, ideally under 30%.
- Register on the Electoral Roll: This helps lenders confirm your identity and address.
- Avoid New Credit Applications: Each credit application leaves a 'hard search' on your report, which can temporarily lower your score. Avoid applying for new credit cards or loans in the months leading up to your remortgage application.
- Close Unused Accounts (Carefully): While closing accounts can sometimes be detrimental if they're old and show a good history, closing multiple new, unused accounts can be beneficial. Discuss this with a financial advisor.
By understanding the impact of your credit score and taking proactive steps, you can significantly improve your chances of a successful remortgage.
