The real cost of bad credit, and how to turn it around

Bad credit can feel like a dead end. But it’s not the end of the road. At Smart City Mortgages, we speak to people every week who think their credit history has shut the door on buying a home to discover that they actually still have options. Yes, it may take more time, and the rates might not be perfect, but a clear plan can get you there.

In this article, we break down what bad credit actually means, what it costs you in real terms, and how to start rebuilding your profile, step by step.

1. What is a “bad credit”?

It could mean:

• Missed or late payments on a credit card or loan.
• A default or County Court Judgment (CCJ).
• Using a high proportion of your credit limit.
• No credit history at all (which can be just as problematic).

Lenders credit scoring systems can be very black and white and not look at potentially extenuating circumstances that led to the bad credit. That means even small mistakes can have a big impact on whether you’re approved and what you’re offered.

2. What does it actually cost you?

Let’s say two people apply for the same mortgage: one has a clean credit history, and the other one has a few missed payments and a default from three years ago. Even if they earn the same and want the same property, the second person could be offered:

• A higher interest rate, costing hundreds more per month.
• A lower loan-to-value (LTV), meaning they need a bigger deposit.
• Or even a decline from some lenders.

Over a 25-year mortgage, bad credit can cost you tens of thousands of pounds if you don’t have the right advice.

3. Can I still get a mortgage?

Often, yes. We’ve helped clients with:

• Past defaults or CCJs.
• Debt management plans.
• A lack of UK credit history

It depends on the lender, the age and type of credit issue, and how much deposit you have. But even with bad credit, there are deals out there.

4. How do I improve my chances?

Here’s what you can do today:

1. Request your credit report from all three agencies: Experian, Equifax, TransUnion. We’ll help you make sense of them and highlight what lenders might flag. You can obtain a copy of your credit file from checkmyfile.com. New users can usually get a free trial, followed by a paid monthly subscription, however your subscription can be cancelled online at any time
2. Correct any errors. Even a wrong address or open account can matter.
3. Register to vote at your current address (this builds trust).
4. Pay on time, every time.
5. Keep credit card usage below 30% of the limit.
6. Avoid new credit applications before your mortgage.

5. How we help at Smart City Mortgages

We will review your credit profile and explain it in your language. Then we’ll recommend lenders who accept your type of credit history and help you position your case in the best light with the right documents and the right timing. If we aren’t able to source a lender that can help based on your current credit profile, we’ll help with creating a new plan (even if buying is 6 or 12 months away).

Bad credit doesn’t define you. With the right advice and preparation, you can still find a path to homeownership. We’ll walk it with you.