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Your credit rating not only affects whether your mortgage application is successful - it can influence how much your monthly repayments will be, too. That’s why it’s essential to improve your credit score before you apply for a mortgage.
Improving your credit score is one of the most effective things you can do to prepare for a mortgage application – but it takes time, so you need to be prepared to chip away at this slowly.
There are three main credit referencing agencies in the UK, and they all use your personal banking information to paint a picture of how well you manage credit. This is summarised by a single number, which is your credit score. Your credit score is so important: it decides whether you can take out a mobile phone contract, it shapes the amount of interest you pay on your credit card, and it can make or break your property purchase.
When you apply for a mortgage, the lender will ask one or more of the credit referencing agencies to look into your financial history to help them make a decision. Having a good credit score may increase your chances of a successful mortgage application – but a bad credit score can mean a rejected application, or more expensive mortgage rates.
The best mortgage depends on your personal circumstances. The award-winning expert advisers at Mortgage Advice Bureau will find the right mortgage for you.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
The best way to understand your credit report is to see it for yourself. You can request your report from the three credit referencing agencies (Experian, Equifax and TransUnion).
Your credit checks aren’t recorded and only you and the credit reference agency will know about it – there is no adverse effect from checking. So check regularly and especially before you make any significant applications for credit.
The checks are all done online and are quick and simple to do. They are also free.
Knowing what your rating is with each agency will give you a great benchmark for improvement.
The most important thing to check on your credit report is that all the information is correct and up-to-date. Make sure all your accounts and credit cards are listed, and take a look at whether you have any defaulted payments or other factors recorded. If any of these details look wrong, you need to contact the credit referencing agency to correct this.
It may take a bit of back-and-forth to add missing accounts or resolve any historic defaulted payments, but this is incredibly important, so go through it in as much detail as you can.
Many people don’t know that opening a joint account with another person means that their credit score can have an influence on yours. Make sure you aren’t financially connected to anyone you shouldn’t be – and ask for any outdated links to be broken.
Obvious financial links would be an ex-partner, but many renters open shared accounts to manage household bills and this creates a link too.
If you are considering buying a house with a partner or buying a house with friends be aware that when you take out a mortgage with someone else, you become financially associated with them. This means that their credit history may be taken into account when you apply for credit in the future.
If you’re not already on the electoral roll, the simple act of registering to vote will improve your credit score. It takes minutes and you can do it online. Credit reference agency Experian recently stated that if you are registered to vote, lenders are likely to see that as a positive sign when you apply for credit because they can more easily confirm your identity. It is seen as a sign of stability.
Experian have revealed that appearing on the electoral roll at your current address can add 50 points to your credit score. However, just 45% of people are aware that being registered on the electoral roll will have any impact. For some, this could mean the difference between a good and an excellent score. This in turn could unlock better rates on loans, credit cards and mortgages.
Missing a payment will leave a negative mark on your credit report, and it can push your credit score down. An easy way to avoid this is to make sure all your bills are paid by direct debit.
If you think you might not be able to make a payment, talk to your creditor before defaulting, as they may be able to arrange a repayment plan.
If you’ve never borrowed money, you may have a very low credit score because you haven’t proven that you can responsibly manage debt. If this is the case, consider applying for a credit card and make sure you repay the balance in full every month.
But, you must be careful with your first credit card. Some credit cards charge a cripplingly high rate of interest, but if you repay the card in full each month then you won’t have to pay interest at all. And remember – don’t borrow more than you can afford to repay in full, as building up debt on a credit card will damage your credit score.
If you use a lot of unsecured credit, in the form of credit cards or overdrafts, it can be considered a sign that you don’t manage your money well or that you’re living beyond your means.
Closing any unused bank accounts can help improve your credit score. And if you have multiple credit cards, consider consolidating the debt into just one. Take a look at interest-free balance transfer credit cards, which allow you to move debt from cards that charge interest onto one that don’t (but beware costly transfer fees).
Every time you apply for credit – whether that’s a credit card, a mobile phone contract, or you want to pay monthly for your car insurance, for example – the company will search your credit report before making a decision. They will do what’s known as a hard search, which means the search is recorded on your file.
Too many of these searches in a short period of time can make you look desperate for credit, and can lower your credit score. If possible, it’s best to try to avoid making any applications for credit as much as six months before you think you’ll be applying for a mortgage.
ClearScore offers free coaching to help you improve your credit score. It’s all done via the app, and gives you a list of tasks to complete. If you’re feeling motivated, you can speed through the coaching in days – but it may take a few months before the impact is visible on your credit rating.
It takes time to build a good credit history, save a deposit and earn enough to take on repayments and running costs that come with owning your own home.
When you’re ready to apply for a mortgage, get expert advice from a mortgage broker. They will be able to help you find the best mortgage for you.
Get fee-free mortgage advice from the award-winning expert advisers at Mortgage Advice Bureau.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note some branches of Mortgage Advice Bureau may charge a fee for mortgage advice if you go direct. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed. So make sure you use this site, this form or phone number for fee-free advice.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
HomeOwners Alliance Ltd is an Introducer Appointed Representative of Mortgage Advice Bureau (Derby) Limited which is authorised and regulated by the Financial Conduct Authority.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
