As many of us know, credit problems can have a very negative influence on the ability to apply for different types of financing. Acquiring personal loans, credit cards, and mortgages, not to mention many other types of funding, is very difficult for those who are suffering with credit issues, either presently or in the past.
But, with the number of people with adverse credit growing across the UK, more and more lenders are starting to become more sympathetic toward and flexible with these borrowers. The introduction of sub-prime financing products allows individuals to acquire commercial business loans even with bad credit and although it has become easier, it is important to know some critical information before applying for a loan.
Repairing or Improving Your Credit before Applying for a Commercial Mortgage
For many people, bad credit is an obstacle they struggle to overcome. The good news is that although your situation may seem hopeless, there are some ways in which credit can be improved to help better qualify you to be approved for a commercial mortgage or some other type of financing.
The best way to begin fixing credit is to gain an understanding of how lenders measure a borrower’s credit and how it affects their ability to be approved for financing. The challenge is that all lenders are different – each organization rates an individual’s credit score based on its own unique set of criteria, so in many cases understanding how your credit affects a loan application will depend on what lender you are using.
A finance broker can be an invaluable resource when a borrower is looking to improve his or her credit. Brokers often have a special insight into different lending organizations and know and understand how they rate a borrower’s credit score. Some lenders who offer borrowers sub-prime products or special mortgages for bad credit in the UK will go as far as to ignore any outstanding credit card debts and may even allow unlimited CCJs and mortgage arrears for qualifying applicants.
Additionally, other lenders will disregard any financial hiccups that are 3 years in the past or older in order to approve a loan. Brokers can help match borrowers with the right lender to get their commercial mortgage application approved.
In What Ways Does a Bad Credit Score Affect a Loan Application?
If you are unable to correct poor credit before applying for a commercial mortgage or other financing, it is important to know how that score can affect the overall application and approval. Lenders often use a complex, mathematical equation to help calculate risk in conjunction with approving a loan for someone with poor credit.
Some of the factors that are included in this calculation include the borrower’s annual income, the length of time of their current employment and how long they have been living in their current residence. Many lenders refer to this as their “mortgages for bad credit calculator,” which can determine the borrower’s creditworthiness when it comes to different loans.
Lenders will also take a close look at a borrower’s repayment history and any outstanding balances. Although these may seem like small problems, they can have a profound effect on the lender’s willingness to approve the loan application. Equally as damaging are any county court judgments or CCJs that may be on the borrower’s record.
Outstanding balances, late or missed payments, CCJs and any other credit hiccups can spell out a financial risk for lenders, making them less likely to approve an application in some cases. Although a broker may be able to make a deal happen, it is important to try and right a credit score before applying to help increase the likelihood of being approved.
Can the Purpose of the Loan Help or Hurt a Loan Application?
As mentioned, the most important thing a lender will look at when approving a loan is the financial risk extended to the borrower if it is approved. The higher the risk, the less likely the lender will go ahead with the deal. Because of this, the purpose of the loan does play a role in calculating the overall risk and depending on the stability of the project or purpose, it can sway a lender one way or another.
If the loan is being used for a luxury purchase, like a sports car or a yacht, it generally leave the applicant open to more financial responsibility than the lender may be comfortable with. If the funding is being used for a more practical purpose, like managing other outstanding loans and helping to improve a credit score, it is much more likely to have a positive influence on the loan’s approval.