Having bad credit does not mean you are a bad person, but it may mean you have gone through a bad spell in a relationship, a health issue, some traumatic experience, a problem with business or just plain old financial pressures.
We know from experience that there are times in our lives where it is easy to avoid or ignore our finances and especially when we don’t know what to do or how to cope.
Of course, in hindsight we look back and know we could have done better, but you cannot turn the clock back – we can only deal now with the past and move on.
Find Out About My Credit Rating
This is almost always the first thing to do when you are going to be applying for one of the bad credit loans and sometimes you can be pleasantly surprised too. When you apply for credit or a home loan the lender (or broker) will complete a credit check on you with a company like Veda. You can also use the free service offered by Credit Simple to see what your credit check looks like.
Your credit report shows the lender information on your history such as how many times you have applied for credit, any payment defaults or debts sent for collection, any court judgments over debts and if you have ever been made bankrupt.
This report does not determine if you will be able to get a home loan, but we use it to determine if there is any credit issues that need to be addressed before your application for a home loan is submitted to a bank or non-bank lender, and in the knowledge that it may limit the options we have.
How To Deal With Bad Credit
Banks will usually view any credit issues or bad credit as a problem!
This does not necessarily mean they will not approve a home loan for you, but they deem you are a higher risk than someone without any past credit problems. They will therefore want to understand what happened to bring about the bad credit and also to know that this is not a pattern of behavior.
We know that no matter how hard we try to do our best, sometimes life just takes us by surprise. Business failure, sickness, separation, accidents, the unforeseen loss of a partner can all result in financial mishaps, impact your income and put extra pressure on you to meet bills, credit cards and mortgage repayments.
As mortgage brokers we like to find out about any issues and ensure that we explain them to any prospective lenders.
Which Bank Will Loan To People With Bad Credit?
When you want a home loan but have bad credit then your application is not going to be quite as easy. In fact many banks will just say “no” straight away unless there is a very good reason for the bad credit.
Remember that there are a range of lenders who all compete for business and they each have slightly different criteria.
The Co-Operative Bank have Fresh Start loans as an option which is suited to people that have had some credit issues. They charge a higher interest rate for a period of 12-months and with a good repayment history the interest rate reduces after 12-months. It is a good way to get into a bank mortgage.
Resimac Home Loans, Avanti Finance and Basecorp Finance all offer good non-bank options for long-term mortgages with people that have had credit issues. Many of the smaller defaults or defaults over 3-years old are not counted as negatives. Liberty Financial is another option although they are a bit more expensive and have a deferred establishment fee of $2,495 that is charged if the loan is paid off or refinanced within 3-years.
LendMe is a peer to peer lender that offers finance for terms of up to 5-years which suits many people that have had issues with credit in the past and are therefore wanting to get one of the bad credit loans until their credit looks better again.
Sometimes if there are unpaid debts then a finance company might be the best option. A short-term 3-months or 6-months is often a good idea as this allows time to pay off any unpaid debts and to demonstrate a short payment history which then means you can refinance to another lender and potentially get better rates.
Your Thinking Should Be Long-Term
The one good thing about any defaults listed on your credit is that most will vanish from your report after 5-years.
This means that even if you have to pay a little extra today for a bad credit home loan, you will not be stuck on higher rates forever. The key thing is to work with a mortgage broker who understands the options and selects the best option for the long-term and does not get you stuck locked into higher interest rates for too long.
With house prices increasing in most of New Zealand and in particular places like Auckland, Whangarei, Hamilton, Tauranga and the Queensland Lakes it is more important to get into the property market while you can.
Focus on the overall cost rather than the first years costs which will typically include a higher than bank interest rate and most likely an application and adviser service fee too.
Why Work With A Mortgage Broker Like Stuart?
Stuart Wills is a non-judgmental mortgage broker that can get you a home loan regardless of your past.
Unlike many bank staff he has been through tough times himself in the past, and although he is one of the few mortgage brokers that has never worked for a bank he understands how they treat people who have had some credit issues.
Being part of the Mortgage Supply Company also helps Stuart with access to most of the lenders that provide bad credit loans in New Zealand.
