Does Repossession Affect My Credit Score?

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Does Repossession Affect My Credit Score?
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Homeowners throughout the UK are becoming increasingly aware of the importance of keeping an eye on their credit score. When the time arrives to contact a mortgage lender about buying a property, your credit history is a major factor which will be taken into consideration. Therefore, if you have a bad score, it will affect the terms of your house purchase.

If you already own a property, then it is still important to look after your credit score, because lenders will still look at this if you ever move house again in the future. Therefore, you may be wondering which significant events can impact your score – for example, does repossession make a difference?

It is important that you understand what does/doesn’t affect your credit score, since this is valuable information for any homeowner. Read on to find out if repossession affects your credit score.

What is a credit score?

Mortgage lenders use your credit score as a way of judging how reliable you are at repaying money. The score is compiled from a range of different information, but mainly focuses on whether you have any outstanding debt, as well as your track record of paying back debt on-time in the past.

In the UK, your credit score will typically range between 0-999. There are different credit rating agencies which provide guidance on what is considered an ‘excellent’ credit score – but according to the most common agency, Experian, an excellent score ranges between 961 and 999, good between 881 and 960, and fair between 721 and 880.

If you have a bad credit score, then this may have an impact on your ability to borrow from a lender. Some lenders may refuse to lend you money altogether, while others may reduce the amount that you are allowed to borrow. These steps are taken by the lender to give themselves protection, in case you fail to meet your repayment requirements and the process of regaining their money is dragged out.

How a mortgage lender responds to you having a bad credit score – as well as what they consider ‘bad’ – may vary slightly for each company.

Does repossession have an effect on credit score?

Yes, repossession will have a significant impact on your credit score in the UK. This is because you are defaulting on a payment – in other words, your account has been closed by a lender because you are failing to meet your financial obligations. If your home is repossessed, you will be considered a major risk for all lenders for at least five to seven years afterwards.

If you cannot make a full payment to your mortgage lender – for example, because you have declared bankruptcy – and have therefore agreed on a settlement with them, then this will have a negative impact on your credit score. However, it will also show lenders that you tried to pay back what you could at the time, so the damage may not be as significant compared with when you cannot pay anything back at all.

If your house has been repossessed, don’t lose all hope: it is possible for you to build up your credit score again and secure a mortgage in the future. However, it takes patience, time and responsible money management. You will need to pay down any out-standing debts and you will also need to be extremely cautious about taking out new loans.

The impact of the repossession on your credit score will decrease as more time passes. As a general rule, it takes between five and seven years for most mortgage lenders to consider you as a worthwhile recipient of their loan once again.

Keep in mind that you can take steps to stop house repossession before it occurs, if you have a viable argument.

Do late payments have an affect on my credit score?

Even if your house is never entirely repossessed, late mortgage payments will still result in a negative item on your credit report. Each time this happens, your report will get worse, and this will eventually impact the offers you receive from lenders in the future. How late your payment was will also make a difference – for example, one day late versus one month late.

What credit score do you need for a mortgage?

Each mortgage lender has a different threshold for risk, and therefore the credit score you need to secure a mortgage will vary for each company. However, the better your credit score is, the more likely you are to be given a mortgage with more favourable terms.

In many cases, a mortgage lender will be willing to give you a lower interest rate if you have a higher credit score, because you are considered less of a risk. On the other hand, if you have a lower credit score, this will likely result in a higher interest rate.

Rebuilding your credit

While repossession can have severe consequences for your credit, it is not the end of the road. There are steps you can take to rebuild your credit over time:

Pay Off Outstanding Debts: Focus on paying off any outstanding debts to demonstrate improved financial responsibility.

Establish New Credit: Consider applying for a secured credit card or a credit-builder loan to establish a positive credit history. Make timely payments to rebuild trust with lenders.

Practice Responsible Financial Habits: Maintain a budget, make regular payments on time, and avoid taking on more debt than you can handle.

Monitor Your Credit: Stay vigilant by regularly monitoring your credit reports and disputing any inaccuracies. Tracking your progress can motivate you on your journey to credit recovery.

Selling Your House to We Buy Any Home

We know that these are difficult times, and we are here to do anything we can to help. If you’re facing repossession on your property, selling to We Buy Any Home is always an option. Contact us today on 0800 774 0004, and our expert team will help you through the entire process.

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