If you’ve ever applied for a mortgage, a credit card, or a loan, it’s likely that you will have been subject to a credit check.
Lenders obtain information about you from a credit reference agency, which forms part of their decision as to whether to agree the borrowing you want.
Your credit rating is particularly important when you come to buy a home. Indeed, new research published by MoneyAge has revealed that poor credit scores have deterred 1 in 10 Brits from applying for a mortgage.
Read on to find out more about why a good credit score is so important, and some tips for boosting your creditworthiness ahead of applying for a mortgage.
Nearly 2 in 3 people don’t know their credit rating
Considering that a good credit score is key to borrowing on competitive terms, it’s perhaps a worry that the research found almost two-thirds (62%) of the people surveyed said they did not know their credit score.
Even more alarmingly, 1 in 2 people who plan to buy a property in the next year were unsure about their score.
If you’re thinking about getting a mortgage, finding out what your credit file says about you is a critical early step.
By law, all credit reference agencies must provide you with a copy of your credit report for free. So, obtain a copy of your report to see what information is held on file.
- Check your Experian credit report through their partner website, MoneySavingExpert’s Credit Club
- Check your Equifax credit report through their partner website, ClearScore
- Check your TransUnion credit report through their partner website, Credit Karma.
Your credit file will show information such as any credit you have applied for in the past, how you have maintained your payments, details of anyone financially linked to you, and public records such as any County Court Judgments (CCJs), bankruptcies, or Individual Voluntary Arrangements (IVAs).
It’s worth remembering that information from credit referencing agencies only offers a general indication of how likely a company might be to offer you credit. This is because every lender uses its own criteria, and these will vary from lender to lender.
A good credit score can help you get the mortgage you want
When lenders consider a mortgage application, they look at a range of factors. As well as looking at your income and outgoings – can you afford the mortgage? – they will also use credit reference information to determine how risky you are.
If your credit file shows you have made late payments on other credit, you have missed payments, or you have adverse credit such as a CCJ, it suggests to a potential lender that you may be a higher risk.
Conversely, if you have managed your credit well in the past, you’re likely to be seen as more responsible, and a bank or building society is more likely to lend to you.
So, maintaining a good credit record is really important when it comes to getting a mortgage. Next, read about simple steps you can take to boost your credit score.
5 tips for boosting your credit score
The MoneyAge research found that almost two-thirds (60%) of people had never taken steps to improve their credit rating. A further 13% said they weren’t clear of what steps they should take to improve their credit situation.
Here are five tips for improving your credit rating.
1. Make sure you’re on the electoral register
If you are on the electoral register it makes it much easier for a lender to verify your identity. If you’re not registered to vote, contact your local council.
2. Build a good credit history…
Sometimes “no credit” can be as much of a hurdle as “poor credit”. So, it can pay to demonstrate you can manage credit effectively.
Take out a credit card and make all the repayments as required, ensure you don’t go into your bank overdraft, and pay things like your mobile phone and energy bills on time.
It’s also useful to know that utility bills such as water, gas and electric all add to your credit score – so make sure you pay them on time every month. If you are renting and living with the partner you want to buy with, make sure all your bills are in joint names.
Demonstrating you can responsibly manage money will increase your chances of getting the mortgage you need.
3. …but don’t use all your limit
Lenders will tend to look on you more favourably if you have long-standing, mature credit accounts. Showing you can responsibly manage debt over a long period is normally positive – and make sure you only use a small portion of your credit limit.
4. Check for mistakes
Even minor errors, such as a mistyped address, can affect your credit score. So, it’s worth checking your credit report to make sure all the information on it is accurate and up to date.
If you do spot a mistake, contact the provider and ask for it to be corrected.
It’s much better that you do this in advance of applying for a mortgage, rather than discovering there are errors when it’s too late.
5. Work with an expert when it comes to getting your mortgage
If you apply for a mortgage, and are rejected, that “search” is likely to remain on your credit file. Multiple searches can actually damage your credit rating – making it even more difficult to borrow.
Rather than making multiple applications to different lenders and being knocked back, speak to an expert first.
For example, we work with dozens of the UK’s leading lenders and can establish who is likely to agree the mortgage you need without you having to go through multiple searches.
If you’re thinking of getting a mortgage and you would benefit from professional advice, please get in touch. Email [email protected] or call us on +44 (0) 20 3411 0079.
