Article by Sam Griffin - 4th May 2021

Will A Default Stop Me From Getting A Mortgage?

There is a boatload of factors that determine a successful mortgage application, such as income, level of deposit, outgoings, and the amount you’re looking to borrow. But in addition to your affordability, your creditworthiness also plays a crucial role in getting approved for a mortgage.

Having a squeaky-clean Credit Report is usually the key to high creditworthiness, but many borrowers inevitably find a late payment or two that slightly reduces their Credit Rating without curtailing their application completely. Much more damaging is a default marker. Getting hit with a default, especially at such an important time, can do more than just tank your Credit Rating; it can shake your confidence.

But will having a default on your Credit Report definitely prevent you from getting a mortgage?

What is a default?

A default is a negative payment marker that an organisation (such as lender, mobile phone provider, or utility supplier) can add to your Credit Report following an extended period of non-repayment. A default is usually preceded by a case of monthly arrears.

Defaults are severely harmful entries (much more so than late payments) that can damage your creditworthiness and subsequent credit applications, making it more difficult and more expensive to take out credit. In short, a default doesn’t definitely prevent you from being accepted for a mortgage entirely, but it certainly will make matters more difficult.

If you have a default on your Credit Report when applying for a mortgage, you should expect to encounter some difficulty, and to pay a higher-than-normal interest rate. Lenders tend to charge higher interest rates to those with impaired credit histories to offset the perceived high level of risk.

Why are defaults such a big deal?

When mortgage lenders assess your Credit Report, they’re looking for evidence that demonstrates how reliable you’ll be at making the scheduled repayments. Past repayment behaviour is considered indicative of future repayment behaviour, meaning the payment history recorded on your Credit Report can strongly influence the outcome of your application.

A default is a major red flag to prospective lenders, as it shows them that other lenders have had difficulty obtaining the agreed repayment, usually over a long period. This is, understandably, something a lender wants to avoid, not just for their own profits, but also from a responsible lending point of view. Lenders have to take steps to ensure they don’t extend credit to those already over-indebted who will struggle to maintain the monthly payments.

Does the type of default matter?

Defaults recorded on your Credit Report tend to impact your calculated Credit Score the same amount, regardless of when the default was issued, the amount owed, the account type, or whether it has been subsequently settled.

That said, all lenders have their own unique lending criteria, so they will all consider the impact of a default – and its unique circumstances – differently. Some mortgage lenders, for instance, will automatically decline your application the moment a default is located on your Credit Report, regardless of other circumstances. Other lenders, especially those specialising in subprime credit, will be more forgiving, preferring fully paid defaults over those still outstanding, and older defaults to more recent ones.

What can I do about the default?

Once a default has been recorded on your Credit Report, it will remain there for six years, regardless of whether you end up paying the amount owed or not.

If you do fully repay the default amount, the default marker itself will still be on your Credit Report for the full six-year duration, but it’ll be marked with a £0 balance or with a ‘Settled’ marker showing that no further payment is needed. As previously mentioned, some lenders may prefer to see a settled default than one that’s still outstanding, but most lenders will consider even a fully paid default a serious negative marker.

Only once the default has been removed from your Credit Report (after the full six-year period), will it stop hurting your creditworthiness.

It will still be possible to obtain a mortgage while a default is recorded on your Credit Report, but you’ll likely find it easier and cheaper once any defaults have been removed.

Even though you are unlikely to see much of a boost to your creditworthiness for repaying a defaulted debt, settling the amount is important to prevent your Credit Rating from being damaged even further.

Any defaulted accounts left unpaid have the potential to be chased up through the courts. If a County Court Judgment (CCJ) is issued against you to reclaim the owed amount, you’ll see even more damage to your Credit Report, making a mortgage increasingly unattainable.

If you’re set on applying for a mortgage while a default is present on your Credit Report, you may wish to consult a mortgage broker, who can help recommend appropriate lenders and mortgages for your Credit Rating.

What if the default is wrong?

If you believe that the default has been incorrectly recorded on your Credit Report, you should initially contact the organisation that reported the default to dispute the entry. As the source of the information – whether it’s a lender, mobile phone provider, insurance provider, or someone else – they are legally required to ensure that they report only accurate information about you to the Credit Reference Agencies.

As such, if you notify them of an error on your Credit Report and they agree that it’s a mistake, they should be able to amend their records and share the correct information instead. Because lenders tend to send new information to the Credit Reference Agencies on a monthly basis, it may take them up to six weeks to update your Credit Report information.

If the source of the information agrees that an error has been made, but is unable to change their data, you can contact the relevant Credit Reference Agency directly to dispute the default. Where necessary, checkmyfile can raise disputes on your behalf with all three Credit Reference Agencies, making it simple to dispute an error.

How do I check my Credit Report?

You can check your Credit Report online with checkmyfile. Our Multi Agency Credit Report is the only one to gather your information from Equifax, Experian, and TransUnion all into the same, easy-to-use platform.

If you’re concerned about a default on your Credit Report, or planning on applying for a mortgage, you can check your Credit Report to see exactly what a lender will see during a credit check. Sometimes, the smallest missing piece can make a big difference, so by checking your Multi Agency Credit Report, you can be confident knowing that you’ve seen everything.

It’s free for 30 days, then just £14.99 per month. Cancellation is quick and easy online at any time.

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