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How to improve your credit rating before getting a mortgage

Your credit rating not only affects whether your mortgage application is successful - it influences 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.

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Improving your credit rating 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.

How credit scores work

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 increases your chances of a successful mortgage application – but a bad credit score can mean a rejected application, or more expensive mortgage rates.

11 tips for improving your credit rating:

1. See your credit report
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 Callcredit). You may be able to check this for free, or you can pay £2 per agency. It’s possible to check your credit report for free with websites or apps such as Clearscore, too.

Knowing what your rating is with each agency will give you a great benchmark for improvement.

2. Make sure the information is correct
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. Something as small as an unpaid phone bill from six years ago could have a serious impact on the mortgage rates available to you, so go through it in as much detail as you can.

3. Check any financial links to other people
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.

4. Get yourself on the electoral roll
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 this online.

5. Pay bills by direct debit
Missing a payment will leave a negative mark in 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 that helps you avoid a big black mark.

6. Prove you can manage debt
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, you should apply for a credit card and make sure you repay the balance in full every month.

It will take a few months, but slowly your credit rating will improve. One obvious sign of a growing credit score is when the bank offers to extend your credit limit.

But, you must be careful with your first credit card. Come 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.

7. Reduce your use of credit
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. This will make you a much less appealing mortgage applicant.

Try to lower your use of unsecured credit to below 50% of the amount available as soon as possible, as this can have a positive impact on your credit score. It’s important to reduce this debt as much as possible before you apply for a mortgage.

See our online mortgage finder and best buys to work out how much deposit you need to save

8. Close any unused accounts
Closing any unused bank accounts can help improve your credit score. And if you have multiple credit cards, you should look at 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).

9. Be careful about applying for credit
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 makes 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.

10. Try free credit score coaching
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.

11. Be patient
It takes time to build a good credit history, save a sufficiently large deposit and earn enough to take on repayments and running costs that come with owning your own home. But it’s worth knowing your credit status – as it may well pay off in the long run.

When you’re ready to apply for a mortgage, you can get free advice from award-winning mortgage brokers London & Country. Find a mortgage online, view today’s best deals or speak to a broker. They will be able to help you find the best mortgage with your newly improved credit score.


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