When you apply for a mortgage, one of the first steps a lender will take is to check your credit file.
This credit check shows a bank or building society details about your finances. They can access details of:
- Existing debts you have
- Credit available to you
- Financial links with other people
- How you have managed your accounts and your debt in the past
- Whether you have made any late payments, or missed any payments
- Court records such as bankruptcies, payment defaults, county court judgments (CCJs) and Individual Voluntary Arrangements (IVAs).
Essentially, a lender wants to know whether you have managed your money responsibly in the past. They will then use this information as part of their underwriting process to decide whether to offer you a mortgage.
Having a sound credit report is often important when it comes to getting a new mortgage. Despite this, new research from Royal London has revealed that more than 9 million people in the UK could have errors on their credit files, which could affect their ability to get credit.
Read on to find out why you should check your credit file before applying for a mortgage, and how you can improve your credit report.
9 million people could have mistakes on their credit report
The Royal London research revealed that 1 in 3 people (29%) who had checked their credit report found mistakes on it. That’s the equivalent of more than 9 million people.
Perhaps more worryingly, a further 1 in 3 people had never checked their credit report at all.
The mistakes included:
- Name or address inaccuracies (accounted for 10% of the mistakes)
- A debt or credit agreement was listed that the individual didn’t have (9%)
- A wrongly listed missed payment (6%)
- A default, county court judgment (CCJ) or sequestration that the consumer didn’t have (8%).
There are several reasons that information may be incorrect, ranging from administrative issues to you not changing addresses on accounts when you move home.
While these mistakes may seem minor, they could affect your ability to get a mortgage or other credit in the future. So, ensuring your credit rating is as good as possible is a crucial step ahead of applying for a home loan. Read on for five tips that could help boost yours.
5 useful tips to help you improve your credit report
1. Check your report in advance of applying for a mortgage
Your first step should be to check your credit report with each of the three main credit reference agencies:
- Experian
- Equifax
- TransUnion
Each credit reference agency holds different information, so it can pay to check your report with each agency.
Despite Royal London finding that almost 1 in 4 people believe you have to pay to access your credit report, by law you have the right to see your statutory credit report free of charge.
Always ask for a copy of your credit report a few months before you apply for credit (such as a new mortgage). By doing this, if you do discover a mistake, you have time to correct the information or add an explanation of your circumstances.
Remember that checking your own credit report will not harm your credit rating, no matter how often you do it.
2. Make sure you are on the electoral register
According to the Royal London research, only half of people know that registering to vote on the electoral register can improve your credit rating. That’s because doing so is a critical way that a lender can confirm your identity and home address.
3. Speak to the credit reference agency if you find a mistake
If you do find a mistake on your credit report, contact the credit reference agencies. If the information is incorrect, they should correct it.
An agency has 28 days from when you raise a dispute about information to respond. You will normally receive one of three replies:
- The agency has removed or corrected the information
- They need longer to investigate it
- The institution in question believes the information is correct.
If you have a complaint about a credit reference agency, you should contact the agency with details in the first instance. They have eight weeks to deal with your complaint.
If you’re not happy with the response after eight weeks, you can complain, free of charge, to the Financial Ombudsman Service.
4. Add a “notice of correction” to explain any missed or late payments
If you discover that there is negative information about you on your credit report – such as missed or late payments – you can add an explanation of why you fell behind with payments to your file.
This is called a “notice of correction”.
You may want to do this if, for example, you fell behind with some repayments because you lost your job, but you are now in work again. If you have added a notice of correction, any credit provider you apply to has to read this information.
5. Disassociate yourself from people who you no longer have a financial relationship with
Your credit file should only link to people with who you have a “financial association”, such as a joint bank account or mortgage.
If your credit report is linked with someone – such as an ex-partner – who you no longer have a joint loan or mortgage with, you can fill in a “notice of disassociation” form.
If the credit reference agency is satisfied there is no longer a financial connection between the two parties, your credit files will no longer be linked.
Get in touch
If you are looking for a new mortgage, we can help. We have wide experience in helping clients like you secure the mortgage you need, so to find out how we can help please email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
