One of the reasons a mortgage application may be rejected is because of a poor credit score. Kate Saines looks into what you can do to give yours a boost and improve your chances of securing a mortgage deal
Whether you are just breaking into the property world as a first-time buyer or remortgaging on your third home, having a good credit score is really important.
At the very least it can make the difference between you being accepted for a deal with an eye-catching low interest rate or having to pay more for a less alluring deal. In the worst case scenario it can be the decider between acceptance and rejection.
Either way, if you are about to take out a mortgage or remortgage your home, you are well advised to check your credit score and, if necessary, improve it if it needs some attention.
What is a credit score?
A credit score is the rating system used to assess how well you have managed to pay bills and credit over recent years.
It’s based on information stored in your credit record – sometimes also referred to as credit history or credit profile.
Details of credit cards, store cards and loans are included within the profile but they also hold information about utility company payments. In fact, any situation in which you have ‘credit’ with a provider or supplier will be recorded. Even something like an unpaid parking fine will appear.
A few other things will also be logged on your credit score too. For example, whether or not you are on the electoral roll, people who are financially linked to you, previous addresses and any County Court Judgements or fraudulent activity.
What score is a good score?
Different credit reference agencies provide different scoring systems. Experian, for example, rates people using 0 to 999. A ‘good’ credit score would be somewhere between 881 and 960, it says, whilst a ‘fair’ score is 721 to 880.
However, whilst the agencies compile and hold the information, it’s up the lender to interpret it and apply it to its own values and rules on lending. Ultimately, each lender is looking for different things when they check your credit report. As such there’s no ‘magic number’ which can easily defined as ‘the best’ score.
How do I check my credit score?
It’s a good idea to check your credit score before you embark on the process of applying for a mortgage. Alan Davison of specialist mortgage provider, Together, said this will help you determine where you stand.
“You can start by checking your score at your bank or looking into credit reference agencies like Experian and Equifax, that record credit history,” he explained.
“This will help decide your next steps and where you can make changes to improving your score.”
He advises checking the report for any errors first – things like misspelling of your name or an incorrect address could negatively impact your score.
If you find any errors, call the provider to rectify it as soon as possible.
What can I do to improve my credit score?
Fortunately, there are a number of easy ways to boost your credit score to ensure you are mortgage-ready – from quick fixes such as putting yourself on the electoral register to longer-term remedies which will help you get your finances in order.
Electoral roll
Let’s start with the electoral roll. Registering to vote by putting your name on the electoral register will not only enable you to have your say at the next election but will ensure companies can more easily identify you. This, alone, will immediately give your score a boost.
Alan explained it can speed up the credit application process because lenders typically have more confidence in their lending decisions if they can easily identify an applicant.
You can register by visiting the gov.uk website, just remember to dig out your National Insurance number.
Credit cards
It’s also a good idea to curb your spending so you aren’t getting too close to the limit on your credit cards.
If you are about to apply for a mortgage, it is advised you keep spending to a minimum in the months leading up to the application anyway.
However, if you must use your card for essentials, make sure you are paying back more than the minimum – ideally the whole balance – each month, on time.
Direct debit
The same goes for bills. Lenders like to see evidence you can keep up repayments and there’s nothing like a late payment or a default to raise a few eyebrows.
Simply having bills to pay – even just a mobile phone bill – will show a lender you can be responsible and meet payment deadlines, so don’t avoid having credit arrangements. Simply make sure you are on top of them.
Alan said: “Payment history is an essential factor in influencing your credit score. Default and late payments drastically impact your rating and often one late payment can plummet your score. Therefore, it is vital to make your payments in a timely fashion.”
One good idea is to set up direct debits to come out of your account just after payday for your bills and credit cards. This allows you to pay the bills before you even know you have the money in your account and means you’ll also never forget.
Disputes
Finally, if you are in a dispute over an unpaid bill or fine, such as a parking ticket – pay first, argue later. That’s the advice from Greg Cunnington, director of lender relationships and new homes at Alexander Hall.
He added: “We unfortunately see scenarios where clients have poor credit scores due to disputes where they did not pay due to disputing the original bill or fine. However this can lead to black marks on your credit rating if you just ignore or refuse to pay.”
To tell the truth, credit score has a huge importance in people’s life and in their credit history. It is really important to track your credit score and pay special attention to it because, otherwise, you are at risk to face a lot of negative consequences. It is so cool that there are a number of easy ways to boost your credit score and that it is not such a difficult process or unsolvable situation. I think that disputes directly affect your poor credit score and it is really important to shut yourself off from this, paying the necessary fines. It will help increase your chances to have a great credit score and get a mortgage afterwards.