It’s a good idea to prepare in advance when considering applying for a mortgage by looking at your credit rating. This increases the likelihood of your application being accepted and you may benefit from a better deal. Why does your credit rating matter? Because as well as checking your affordability for the mortgage and taking your deposit into account, lenders check your credit rating to see how well you manage your finances. Therefore, it’s worth checking it first and then working to improve it if need be.
How to check your credit rating
To check your credit report, you need to contact the three main credit reference agencies. They are Equifax, TransUnion and Experian. Each one will collect different data on you so it’s important to obtain a credit report from all of them. The data collected will include how promptly you pay your bills, any debts you have, whether you’re on the electoral roll and if you have a record of bankruptcy or any CCJs, for example.
What happens after you check your credit score?
You may have a low credit rating or none at all but don’t be disheartened by this. Your credit file is impacted in different ways by financial transactions. For example, you may have missed a payment for your mobile phone. This isn’t viewed as serious as missing a mortgage payment. Or you may have a low credit score despite never being in debt before. This could be for the simple reason that you hardly ever use credit so there’s little information to confirm your ability to manage your finances.
Any adverse credit on your file will be deleted after 6 years but you should still try to improve your rating in the meantime. This shows lenders that you’re managing your finances better. They’ll be more likely to agree to a bad credit mortgage.
How to improve your credit rating
There are various steps you can take to improve your credit rating, which we’ve detailed below.
Register on the electoral roll
Lenders use the electoral roll to confirm your name and address. If you’re not on it, you risk them not processing your application. Being on the electoral roll is an easy way to start increasing your credit score.
Check the accuracy of your credit report
Check that the information on each credit report is accurate. It’s important that any inaccuracies are rectified so be sure to notify the relevant credit reference agency. Ask them to either amend or delete the information as appropriate.
Remove financial links that are no longer relevant
Any previous financial associations that no longer apply need to be removed from your credit file. For example, you may have lived with your partner and have since split up. Or you may have lived with a group of housemates and paid the household bills from a joint account. Your applications for credit can still be affected by their credit behaviour so you need to ensure that any financial link with them is removed from your credit file.
Pay your bills on time
Paying your bills on time shows lenders that you can manage your finances. If you miss any payments or make late payments, lenders will question your ability to make mortgage repayments.
Reduce your debts
Lenders will look at your debt-to-income ratio. Try to reduce the amount you owe to lower this ratio.
Minimise your credit applications
It’s important to keep your credit applications to a minimum and, if possible, try not to make any in the 6 months prior to your mortgage application. By borrowing more, your debt-to-income ratio immediately increases. As well as that, a new credit check will be carried out on you each time you apply for credit. To lenders, this will tell them that you’re unable to manage your finances properly.
Rejected credit applications will also count against you from a lender’s perspective. They will take this to mean that you’re not creditworthy and, therefore, may be unable to maintain your mortgage repayments.
Avoid taking out a loan to clear existing debts
It can be tempting to take out a new loan, such as a payday loan, with the purpose of clearing existing debts. However, as this is another credit application and a new debt, it will do your credit rating more harm than good. Lenders will simply view this as an inability to manage your finances properly.
Boost your chances of a successful mortgage application with an improved credit score
If you’re worried about how a bad credit score or having no credit history at all may affect your chances of being accepted for a mortgage, just give us a call on 01322 907 000. Our mortgage brokers can give you expert advice on how to improve your credit rating before you apply. They can also discuss the mortgage options available to you, such as guarantor mortgages and bad credit mortgages. They will tailor your application and approach the lender most likely to approve it based on your circumstances.