What is a credit score?
When you apply for a mortgage, one of the first things lenders will want to check is how you have managed any borrowing in the past.
They do this by looking at your credit score, which is essentially a number that represents your credit history. When calculating this score, many factors are considered, including whether you make monthly payments on time, how much of your available credit you are using, and what your total debts are.
The higher your credit score, the lower risk you are considered to be by lenders, which means any mortgage application you make is more likely to be accepted. Conversely, the lower your score the higher the risk lenders will consider you, which means they may be wary about offering you a mortgage.
Is your credit score lower than you expected? The good news is that there are plenty of things you can do to improve it and boost your chances of having your mortgage application accepted. Here are our top tips.
Make sure credit is registered to the right address and name
If you’ve moved home recently, make sure any credit agreements you have, such as credit cards or personal loans, are registered to your current address rather than your old one, and that they are held in the correct name.
Don’t miss credit card or loan repayments
Always make any debt repayments on time and try to pay off more than the minimum each month when possible so you can pay off what you owe more quickly. Proving that you are a responsible borrower can really help bump up your credit score.
Check you are on the electoral register
Even something as simple as not being registered to vote can really damage your credit score. If you aren’t already on the electoral roll, you can sign up at www.gov.uk/register-to-vote.
Shut down any credit accounts you don’t use
If you’ve got lots of credit cards cluttering up your wallet that you don’t ever use, it’s time to get rid of them, as lenders will be nervous if you’ve got access to lots of credit. As well as cutting up the cards themselves, contact the card providers and let them know you want to cancel your accounts.
Make sure no-one has opened a fraudulent account in your name
Financial fraud is on the rise, so it’s a good idea to regularly check your credit history to see if there has been any suspicious activity which could have affected your credit score. If you spot anything that doesn’t look right, contact the credit provider involved. If you have been a victim of fraud, ask the credit reference agency to correct their records and notify Action Fraud on 0300 123 2040. You can find more information at www.actionfraud.police.uk.
Build your credit history
It might seem odd, but if you’ve never had a credit card or personal loan, this can mean you have a low credit score simply because there isn’t any evidence to show how you would manage any borrowing. If you want to build up your credit score, one option is to consider applying for a ‘credit builder’ credit card. These typically offer very low credit limits and charge steep rates of interest, but the aim is that you repay what you owe every month therefore demonstrating you can manage debts sensibly.
Don’t make too many applications for credit at once
If you make lots of applications for credit in quick succession (and that includes things like mobile phone contracts) lenders will be worried that you appear desperate to borrow cash. Always space applications out, and if you’re rejected by one lender don’t then apply to several others, as they are likely to refuse you too. It’s also a good idea to ask lenders to do a ‘soft search’ which will tell you what sort of lending rate you can get rather than a ‘credit search’ as this is less likely to impact on your credit score.
Try to avoid joint credit
Remember that if you apply for credit in joint names and the other person has a bad credit score, this will affect you too. If you’ve separated from someone you had a joint credit agreement with, let the credit reference agencies such as Experian, Equifax and CallCredit know so they can record this on your credit history.
Please note: Whilst this guide gives an indication of how to improve your ‘credit-worthiness’, please bear in mind that when making an application to a lender, they will also risk profile your application. And, whilst your credit score may be high, you may not be what they’re looking for – at this particular time – which is why you should always speak to a mortgage broker who can consider all factors.