If you’re considering a bridging loan, you might worry about your credit score and how it affects your chances.
It’s a common concern, especially if you’ve had financial difficulties in the past.
But here’s some good news: for bridging finance, your credit score plays a much smaller role than you might expect.
Bridging loans are short-term financing solutions, typically used in property transactions or business ventures where speed is essential.
Unlike traditional mortgages or personal loans, bridging lenders focus more on the value of the property being used as security and your exit strategy – that is, how you plan to repay the loan.
This approach means that even if your credit history isn’t spotless, you might still qualify for a bridging loan.
In fact, some lenders specialise in providing finance to borrowers with less-than-perfect credit. These ‘non-status’ lenders assess applications based primarily on the asset’s value, rather than the borrower’s credit profile.
Let’s examine how bridging loans work, what lenders actually consider, and your options if you’re concerned about your credit score.
What is a bridging loan?
A bridging loan is a short-term finance option designed to cover a temporary gap in funding.
These loans are secured against property and typically last from a few months up to two years.
They’re commonly used for:
- Buying property at auction
- Breaking a property chain
- Funding renovations or conversions
- Purchasing property before selling an existing one
Bridging loans are well known for their quick arrangement times and flexibility.
Loan amounts can range from £150,000 to several million pounds, with loan-to-value (LTV) ratios typically up to 80% of the property’s value.
The role of credit scores in traditional lending
In the UK, credit scores are numerical representations of your creditworthiness, based on your financial history. Different credit reference agencies use different scales – for example, Experian scores range from 0 to 999.
For conventional mortgages and personal loans, these scores play a significant role. Lenders use them to assess the risk of lending to you, with higher scores leading to better interest rates and terms.
However, bridging loans operate differently. While some bridging lenders may consider your credit score, it’s often not the primary factor in their decision-making process.
How lenders assess bridging loan applications
When evaluating a bridging loan application, lenders typically prioritise:
- The property’s value: This is the primary security for the loan.
- Your exit strategy: How you plan to repay the loan at the end of the term.
- Your experience: Particularly relevant for property developers or investors.
For example, if you’re an experienced property developer with a clear plan to renovate and sell a property within 12 months, a lender is likely to approve your application even if your credit score isn’t ideal.
And let’s not forget loan-to-value. Someone needing 50% LTV poses a much lower risk than someone wanting 80% LTV.
When credit scores matter for bridging loans
While credit scores are less critical for bridging loans, they’re not entirely irrelevant.
Their importance can vary depending on:
- Whether the loan is regulated or unregulated: Regulated bridging loans (typically for owner-occupied properties) do involve stricter credit checks.
- The lender’s individual criteria: Some lenders place more emphasis on credit scores than others.
- The loan terms: Your credit history might affect the interest rate or the maximum LTV offered.
If your exit strategy involves using a long-term mortgage to repay the bridge the lender will be more focused on your credit situation.
Long-term mortgages such as residential, buy to let or commercial mortgages do look at an applicant’s credit status. The bridge lender will need convincing that you can actually get this long-term mortgage, and you may need to provide a Decision in Principle (DIP) to help with this.
Options for Borrowers with Poor Credit Scores
If you’re concerned about your credit score, non-status lenders could be one option.
These lenders don’t conduct traditional credit checks and instead focus on the property’s value securing the loan and the overall deal.
The benefits of this approach include:
- Accessibility for borrowers with poor credit histories
- Faster application processes
- Potential for higher LTV ratios
However, keep in mind that non-status loans will come with slightly higher interest rates to offset the increased risk to the lender.
Read more: Non-Status Bridging Loans Explained
Alternative assessment criteria
Beyond credit scores, bridging lenders consider:
- The property’s location and condition
- The strength of your exit strategy
- Your overall financial situation
- Any additional security you can offer
For instance, a lender might offer a £700,000 loan on a £1 million property in a prime London location, even if the borrower has had credit issues in the past, provided there’s a solid exit strategy in place.
Work with a specialist broker
A specialist bridging finance broker can significantly improve your chances of securing a loan.
They can:
- Access a wide panel of lenders, including those who specialise in non-status loans
- Match you with the most suitable lenders for your circumstances
- Guide you through the application process, helping you present your case effectively
At Bridging Finance London, we have relationships with over 250 lenders, including many who are willing to look beyond credit scores when assessing applications, and those who have non-status solutions.
While a good credit score can be helpful, it’s not always necessary to secure a bridging loan.
Many lenders focus more on the property’s value and your exit strategy.
Non-status lenders specialise in assessing applications without traditional credit checks. With the right approach and expert guidance, bridging finance can be accessible even to those with credit challenges.
Need some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To speak with a specialist broker, please call us on 020 3556 9137
