Published in Debt Advice Features on Wednesday, July 04 2007

If you have unsecured debts they can affect you in several different ways when you look at acquiring a mortgage.

If you have had difficulties with paying your debts, for example one or two missed payments then this will have been recorded on your credit report. When you apply for a mortgage your credit file will be looked at by the mortgage lender to check what sort of a history you have with repayments and how much credit you actually hold. If you have missed a few payments, the mortgage lender will consider you a slightly higher risk and this in turn usually affects the deal you get in the way of the interest you pay on the mortgage. For example those who are considered a higher risk will pay a higher interest rate on their mortgage. If you are in this situation you should definitely shop around as some lenders specialise in this sort of mortgage and may be able to offer you a more competitive interest rate.

Again if you think you have a poor credit score because of CCJ’s etc., then it is likely that you are going to pay more for your mortgage. It is worth remembering however that different lenders will score you differently. You do not have one definitive score. The lender will have certain criteria that they are looking for, and when examining your credit file they will give you their own score, this can mean it is very wise to shop around as with the different scoring systems you may come out better with some companies compared to others.

If you have a lot of debt this may also affect you adversely as the lender may feel you are a higher risk with so much commitment, and obviously you have acquired this debt for a reason. Is it because you are close to being insolvent? Could you afford mortgage payments along side your unsecured debt payments. This is not to say they won’t give you a mortgage but as with anything they will make you pay for the privilege if they consider you a high risk.

Your credit report does show activity dating back six years. However you can repair it over this time, so basically things that may have affected you a few years ago, with careful use of credit now may be not looked into. You can also write a notice of correction, giving you an opportunity to explain why something is on your credit file.

The best thing to do is first of all discuss your need with a mortgage lender – could you consolidate you debts into the mortgage? Would entering a debt management plan help? What sort of interest rates will you be looking at paying? Is it worth paying off the debts before you acquire a mortgage? Compare all your options and work out which will suit you financially.