Self-employed and have bad credit

Can you still get a mortgage?

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How to get a mortgage if you're self-employed and have bad credit

Choosing a self-employed or freelancer career comes with different challenges to traditional employment roles. Running a business and organising the daily demands of being solely in charge of your finances removes some of the assurances a steady pay-cheque brings and introduces all the risks of an unpredictable budget.

Can I get a self-employed mortgage if I have bad credit?

Whether self-employed or not, there will be situations that challenge our finances, whether through an emergency, illness, or plain, old-fashioned bad luck. However, being accepted for a self-employed mortgage with bad credit isn’t out of reach. There are plenty of specialist mortgage providers willing to work with borrowers just like you.

Most specialist lenders aren’t available directly to the borrower, meaning you won’t find them on the high street or through a quick Internet search. Typically, they work hand in hand with mortgage brokers and are highly likely to reject applications that don’t come via a suitable intermediary. Given that every credit application requires a hard search on your credit report, each rejection will mark your credit score down even further. That’s one more reason to use a dependable mortgage broker who will only put you forward for the products where you stand the highest chance of being accepted.

Finding a suitable lender as a self-employed worker can sometimes feel like a challenge, one made even trickier with a low credit score and poor credit history. However, with a little extra work and the right help, most applicants find a suitable match and are soon on their way to owning their new home.

Why is it hard to get a mortgage when self-employed?

Because self-employed incomes aren’t always easy to project, mortgage lenders consider them something of an unpredictable income. With such unpredictability, it can be difficult for those lenders to pinpoint the amount you’ll comfortably be able to repay.

Furthermore, many mainstream lenders and high-street banks use automated processes to decide how suitable an applicant is, and they don’t always account for borrowers who don’t have a regular predictable payslip.

Being self-employed, each applicant has to prove that their income is steady enough to comfortably cover the money they need to borrow, which isn’t always straightforward. Because of that, they’re considered a higher risk, and because the mainstream lenders want their loans to be as simple and as straightforward as possible, they’ll regularly pass up on self-employed workers, freelancers, and contractors for safer bet options that are easier to process.

What exactly is bad credit?

Every time someone applies for a loan, credit card, car finance, mortgage, or any other type of finance, the provider checks their credit report to see how they manage their finances.

Your credit report monitors all your financial activity, from how you pay your bills and how many credit cards you have to the times you’ve missed payments and how much debt you have. It includes any court proceedings or legal action against you due to money problems.

The most serious debt issues result in court action and are taken very seriously by finance providers.

  • Debt management plans (DMP)
  • County Court Judgements (CCJ)
  • Individual voluntary agreements (IVA)
  • Bankruptcy
  • Late payments and defaults

All this activity is used to calculate your credit score. A low credit score suggests you haven’t handled your finances well over the past few years and might not be a suitable risk for more credit. Conversely, an average or high credit score will assure the lender that you’re more than capable of making payments on time and are a suitable candidate for further credit.

How do mortgages for self-employed applicants with bad credit work?

Thankfully, not all lenders see the self-employed and freelancers as risky opportunities. But unfortunately, these lenders aren’t usually found on the high street and most likely only work with mortgage brokers.

Instead of running an algorithm or computer program to decide if a borrower is a viable prospect, they take more time to understand each unique financial situation. They’ll consider the issues you’ve previously faced and how you’ve managed your finances over the past few years.

They’ll expect to see proof of how you or your business has operated over the past two or three years and any proof you may have that things will continue to run successfully, maintaining your projected income.

What are the criteria for a self-employed bad credit mortgage?

If you’ve suffered court proceedings from being unable to meet your financial obligations during the past six months to a year, it’s unlikely that a mortgage lender will be prepared to work with you. But, if that’s the case, we can help you get back on track and introduce you to the actions that will help rebuild your credit score, putting you in a position that proves to lenders that you’re no longer a high-risk applicant.

The criteria lenders expect from all mortgage applicants are that they have proof of income and a cash flow that shows they’ll comfortably be able to meet their repayments. Usually, that comes from a healthy credit score, an appropriate wage or income, and an acceptable deposit. The situation is the same for the self-employed with bad credit, despite documentation and proof of what they project often being slightly more challenging to produce.

  • Self-employment history
  • Two or three years’ tax returns or copies of yearly accounts
  • When and why bad credit issues occurred
  • A current cash flow forecast
  • Various additional lending criteria from lender to lender

You’ll be expected to explain why you found yourself in a financial predicament beyond your control and also clarify the steps you took to resolve the situation, getting back onto an even standing with your finances.

What deposit do I need for a bad credit self-employed mortgage?

Given just how much a poor credit score affects your application chances, you may be expected to produce a higher deposit amount than borrowers with no previous financial issues or unpredictable income.

That said, not all lenders are created equal. Some may entertain lower deposits, charging a higher interest rate for the increased risk. Others will see a higher deposit as a greater commitment to repaying the loan and offer deals with more competitive interest rates.

What are contractors' chances of getting a mortgage with bad credit?

A contractor is someone who works for the same company on a short or fixed-term basis or for a single business at an agreed rate. Each contractor is responsible for their own finances and business operation, controlling when and where they work, the contracts they undertake, and how much they are worth and paid.

As well as operating as self-employed, contractors can also be agency workers or those working on zero-hour contracts.

Contractors face similar issues to self-employed applicants, given their income is seen as unpredictable.

Like a self-employed applicant, contractors must show proof of earnings for at least the previous 12 months. Providing evidence from further back and of upcoming contracts can help with applications, as would meeting the same expected criteria of regular self-employed and freelance workers.

Can I improve my chances of getting a bad credit mortgage as a self-employed person?

There are several steps borrowers can take to improve their chances of securing an appropriate mortgage.

  • Putting down a larger deposit
  • Providing additional years of trading accounts
  • Lowering their total debt amount and credit limits – paying off existing short-term loans and finance can free up more available credit
  • Carrying out all recommendations to optimise their credit score
  • Using an experienced mortgage broker to manage applications and negotiations
  • Taking advice from a mortgage broker about the best ways to handle applications and manage finances
  • Only applying for one mortgage at a time, and only those that stand the highest chance of being accepted


So, will bad credit affect a freelancer mortgage? Quite possibly, but it doesn’t mean the end of your journey and that you won’t be able to find a suitable resolution and an appropriate mortgage.

While bad credit is likely to cause problems for applicants from all walks of life, there’s no reason why, with a little effort and professional help, self-employed and freelance workers with bad credit can’t find an appropriate lender to help them purchase their own homes.

CLS Money works with all kinds of specialist mortgage lenders and will help you find the perfect match for your situation. We regularly arrange mortgage loans for the self-employed with bad credit, so give us a call today to discuss your options.

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Gemma May

Mortgage Advisor

Gemma May

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