In general, a good credit score is not an essential part of an equity release application, since a credit score is a measure of how assiduous you are in making repayments on a loan, and there are no repayments under equity release.
Since your house itself is the most important security for a lender, they will be more concerned to ensure that it is not undervalued and does not have defects that would prevent it from being readily marketable. In fact, since a house is often a person’s most valuable asset, equity release is often used by those with bad credit to repay their other debts.
Lenders will still carry out a check of your credit history, if for no other reason than to ensure you do not have any other financial commitments on your house, such as an undisclosed mortgage. A credit check will also reveal if there are any major red flags relating to existing debt. These could include unsettled County Court Judgements (CCJs) or Individual Voluntary Agreements (IVAs), as well as bankruptcy, that could indicate you are especially high risk. Undischarged bankruptcy would prevent you from being offered an equity release plan. Provided it is disclosed to the lender – and it will be indicated on your credit file in any case, a discharged bankruptcy should not result in you being refused equity release.
You will normally be able to be provisionally approved for equity release with an unspent CCJ. CCJs are normally required to be settled before equity release funds are actually released to you. However, some lenders may allow you a grace period of several months after released within which to settle the CCJ. This is especially important if you have a charging order placed on your house under the terms of your CCJ, earmarking some of the funds from sale or re-mortgaging of your house to repay your creditors. In this instance, it will be essential to settle the CCJ and remove the charging order before you will receive funds from equity release.
Attitudes to IVAs vary among lenders. Some will approve equity release for customers in an IVA, provided it is settled before your equity release application is approved, or will even require the IVA to be cleared before they assess an application. However, since under the terms of an IVA, you will normally be required to release equity in your home to help pay your debts, some lenders will proactively assist in this process by lending to these customers, providing them with the ability to repay their debts and discharge their IVA.
Normal credit problems such as high credit card debt are often not an issue to an equity release lender, since the debt is not secured on your property. Even being in unsecured debt arrears may not be an insurmountable obstacle, if the arrears are relatively low and you are making payments.
If you have concerns about your credit score and whether you may be accepted for equity release, it is best to speak to an equity release adviser to discuss your options.
