A failed credit score could cost less than you think

Posted 11-01-2019

There are many reasons why your clients might fail a credit score, and a cash flow crisis is just one of those. Working with a specialist lender that can look beyond a score, can help you to secure an affordable mortgage solution and hopefully a happy client.

The importance of cash flow

Cash flow is paramount to any business, yet according to the Chartered Institute of Credit Management, more than 27% of invoices are paid late. A recent glitch in the childcare payment system run by HM Revenue & Customs meant that 22,000 payments were delayed, leaving many nurseries and childminders unpaid.

The consequence of being paid late, or not at all, is felt most hard when it comes to meeting regular outgoings, such as credit commitments and utility payments, which can negatively impact credit records and therefore the ability to secure borrowing in the future.

Following the glitch, childminder, Kelly, said in a BBC report at the time: “I was only out of pocket by £300, so not as extreme as some others. I could survive, and I did manage to pay my bills, but this is only because my partner and I share money. If we had separate finances £300 would have disrupted my ability to meet the bills.”


Cost of a failed credit score? Less than a takeaway

One of the many myths surrounding borrowing is that a failed or low credit score means a borrower won’t be able to secure a mortgage. However, it’s not impossible and a failed credit score doesn’t always have to mean a significantly more expensive mortgage either.

For example, Pepper Money’s lowest 2 year fixed rate on Pepper 48, for clients who haven’t had a CCJ or default in the last 48 months, is available for 2.17% up to 65% LTV.

A NatWest fixed rate mortgage at the same LTV currently costs 1.73%. This seems like a considerable difference but, on a £150,000 mortgage over a 25 year term, the extra cost is just £32 a month.

This cost difference works out at less than half the average amount of £80 a month that people in the UK spend on takeaways, according to research by Deliveroo.


Case Study: Helping clients overcome cashflow difficulties

Married couple, Paul and Alison, wanted to buy a larger home to accommodate their growing family. Alison ran a childminding business, while Paul had been working with the same employer for many years.

Alison had previously seen her income drop by nearly £4,000 per month when her childminding business ran into difficulties. As defaults, late payments and their adverse credit history worsened, the family moved in with parents and rented our their home.

Two years later, once they regained control of their finances, they were able to move back into their family home. Alison’s new business was thriving and they decided the time was right to look for a larger home for their growing family.

When applying for a mortgage, they discovered their past financial problems were still causing issues.

Our underwriters at Pepper Money took the time to understand Paul and Alison’s circumstances and were able to identify the reason for their historic credit difficulties and confirm the stability of their current financial position, helping them secure the mortgage they needed.


This case study is based on a real case but the names have been changed.

Rates correct at the time of writing - 16 November 2018