When you apply for a mortgage, a lender will take a number of factors into account when assessing whether to lend to you, how much they will let you borrow, and what interest rate to charge you. In addition to looking at your income and outgoings – and other factors such as your age and employment status – the lender will also take into account your credit score.
What is a credit score?
Your credit score – also known as a credit rating – is a measure of your creditworthiness based on your current and past credit commitments. Lenders obtain this information from one of the three UK credit reference agencies – Equifax, Experian and Callcredit.
Credit commitments can take the form of obvious credit-based borrowing, such as credit cards, store cards and personal loans, but some types of credit may be less obvious – for example, mobile phone contracts or your broadband service.
If you have maintained your credit commitments carefully and made all your payments on time, you are more likely to have a high credit score. On the other hand, if you have had missed payments, arrears or other problems with debt, then your credit score may be low. Note that the actual numerical “score” used differs between the three credit agencies . Also do note that lenders will still apply their own assessment of your credit worthiness so these scores are only to be used as a guide to your potential borrowing ability.
How do I check my credit score?
There are two main ways you can check your credit score: either online, or by requesting a paper copy of your credit files from one or more of the UK’s credit reference agencies. You can obtain a physical copy of your credit file for a statutory charge of just £2 from:
You can also obtain your credit score online through the following portals:
Why do mortgage lenders use it to assess applications?
Your credit rating gives lenders an idea of how well you have maintained your credit commitments in the past, which they take as an indication of how likely you will be to keep up with your mortgage payments in the future. In short, lenders use your credit history to determine how risky it would be to give you a mortgage.
What steps can I take to improve my credit score?
A poor credit score can come about for all sorts of reasons – it doesn’t have to be poor financial management or carelessness. Difficult financial circumstances, a period of unemployment, a separation or divorce – there are many reasons why someone might fall behind with payments or get into difficulties.
It can even happen due to error – for example, a mobile phone company failing to cancel a contract. However, if a third party error does leave a black mark on your credit file, you have the right to have it corrected.
The good news is that if you do have a less-than-perfect credit score, there are practical steps that you can take to improve it, and in turn enhance your chances of being approved for a mortgage. Here are some examples.
- Register on the electoral roll – You will find it much harder to get credit of any sort, and particularly a mortgage, if your name isn’t on the electoral register. This is easy to rectify: you can either register to vote online or by post.
- Check your credit file for mistakes – As mentioned above, mistakes can and do happen, and even a minor error (such as a slightly incorrect address) can have an impact. Obtain copies of your credit file and check it carefully for any discrepancies – if you find a mistake, contact the relevant credit reference agency for information about what to do next.
- Check for false or fraudulent entries – If you spot an item on your credit report that you don’t recognise, there is a possibility that someone could have taken out credit in your name fraudulently. If this appears to be the case, contact the relevant credit reference agency immediately.
- Manage your existing credit commitments – Make sure you pay your bills on time. If you currently pay manually each month (for example by online banking) then consider switching to Direct Debit to minimise the chance of accidentally missing a payment or paying late.
- Manage down your existing debt – Mortgage lenders and other credit providers can be less likely to lend to you if you have a high level of existing debt. If you are in a position to do so, then you should make every effort to reduce or eliminate your other debts before applying for a mortgage.
- Check for financial associations – If you have ever taken out a form of credit with another person, such as a spouse or family member, then your credit scores will be linked. That can mean that, if the other person has a poor credit history, it may affect your personal rating. Crucially, this association will remain on your credit report indefinitely, even if you are no longer together and have closed any joint accounts. The good news is that in this situation, you can contact the credit reference agencies to remove any link that should no longer be there.
- Stay in the same property – Lenders prefer to give mortgages to people who have a stable address history, while people who move home a lot are generally considered a riskier lending proposition. Bear this in mind if considering a move.
- More serious credit problems – If you have had or are in danger of encountering more serious debt problems, for example County Court Judgments against you, then you should ask for help from an independent debt advice agency.
How Just Mortgage Brokers can help
At Just Mortgage Brokers we have many years of experience in helping people find the mortgage that’s right for them – and that includes people with a poor credit score. If you are concerned about how your credit score might affect your ability to get a mortgage, give us a call today to discuss how we can help.