Securing A Commercial Mortgage With Adverse Credit

It is no secret that poor credit has a profound effect on an individual’s ability to apply for loans, credit cards, and mortgages. Recently, however, more lenders have become sympathetic to those individuals suffering from adverse credit and have devised ways for them to still secure the funding they need.

Sub-prime products allow borrowers with impaired credit histories to qualify for the mortgages or loans they need. Although this makes the process easier, it is still important to recognize that it may be difficult to acquire commercial business loans with bad credit.

How an Adverse Credit Score Affects Your Loan Application

Mortgage lenders use a complex, statistical expression when analysing credit scoring and approving loan applications. Other factors, such as the applicant’s income, residential address history, and time of employment, are also considered in the decision.

The outcome of the calculating of these factors gives lenders a picture of the applicant’s creditworthiness and an idea of whether or not the loan request will be approved. In addition to the factors listed above, some lenders will also take into account available credit limits, repayment histories, and any outstanding balances that the applicant may have.

When it comes to repayments and outstanding balances, lenders will examine any missed payments or defaults the applicant may have on his or her credit score. These two hiccups in an applicant’s finances can have a profound effect on whether or not he or she is approved for the mortgage.

Enquiry Form:

County court judgments and CCJs are also recorded on a credit score and can be equally as damaging to the applicant’s overall score and chances of being approved. All of these factors indicate financial risks to a lender, which will have them questioning whether or not to approve the loan.

How to Repair or Improve Credit Before Applying for a Commercial Mortgage

Although having poor credit may seem like an impossible obstacle, there are some ways to improve a credit score over time, which can help increase one’s chances of being approved for commercial mortgages and other financial loans. In order to best know how to fix a bad credit score, it is important to understand how lenders and other financial institutions evaluate a credit score when considering a loan application.

Each lending institution is unique and will likely evaluate an individual’s credit score on its own scale and use methods unique to its institution in order to make a decision on a loan.

As brokers, our organization has access to information on how each lending institution evaluates credit data and classifies applicants with adverse credit when approving mortgage applications.

For example, some lenders who offer subprime products or mortgages for bad credit in the UK will ignore outstanding credit card balances and even allow unlimited mortgage arrears and CCJs, while others may only allow passage for financial hiccups that are three years old or older. Some lenders also offer credit-boosting services, which can help applicants improve their scores.

As an individual, there are ways to be able to improve and manage your credit score on your own. For example, having credit cards at or close to their limit can have an adverse effect on your credit score, so making sure to keep credit card balances down will help to improve your overall score.

Additionally, applying for multiple lines of credit within a short amount of time can be a red flag to lending institutions, so make sure to only apply for additional lines of credit when absolutely necessary. Leaving several months between opening credit lines allows the ability to make sure all bills are paid on time.

Does the Loan’s Purpose Affect the Lender’s Final Decision?

When considering an application, lenders most often consider the financial risk of extending the funding to the individual. In the case of applying for increased credit on a remortgage, the lending institution will often look at what the funding is being used for to more accurately calculate its financial risk.

A luxury purpose, for example, such as an expensive car or yacht, will generally open the applicant to more of a financial liability, as do loans whose purpose is to fund home improvements or other property purchases.

If the funding is being used to manage other outstanding balances and clean up a financial portfolio, lenders are more likely to approve the borrower’s application simply because they are erasing debt, not adding to it with the proceeds of the loan.