When applying for a mortgage, it’s vital that you can prove to the lender that you will be able to make the mortgage repayments each month. Usually lenders will want to see that you are sensible with your finances and that you don’t overspend or borrow more than you can pay back.
If you’ve had numerous credit cards in the past and have sometimes struggled with repayments you may find it more difficult to get a mortgage than someone who has a more financially secure reputation. You’re also likely to find it hard to convince a lender to lend to you if you’ve relied on payday loans or have failed to pay your phone bill on occasions.
However, some people are unable to borrow money towards a house simply because they have no credit history at all. If you’ve never had a credit card and have never had a contract for your phone, your lender may struggle to determine whether you’ll be a trustworthy borrower or not, because you’ve got no evidence of it in the past.
The good news is that if you’re looking for a mortgage, you can check your credit rating yourself before you apply.
If your credit report is bad, and it suggests that you have struggled with repayments and your finances in the past, it’s now time to start fixing things. Here’s just a few tips to help you to make yourself more appealing to lenders.
Pay on time
This may sound obvious, but it’s vital that you ALWAYS pay on time. Whether we’re talking phone bills with Orange, a store card with Miss Selfridge, or a credit card with Santander, if you’ve borrowed money or are on some sort of contract, pay as soon as you get the bill.
If you’ve paid late in the past, it’s vital that from now on you don’t do it again. If you have outstanding bills, try to pay them off as soon as possible and don’t borrow any more money if you can avoid it.
Beware of store cards
Store cards can sometimes be beneficial and can be a great way of improving your credit rating, but only if you pay on time every time. In my opinion, store cards are only really good if you don’t actually need them.
Let’s imagine you’re doing a hefty shop in Debenhams in January and have a ton of money in your purse that Grandma gave you for Christmas. When you get to the checkout, the cashier might ask you if you want to sign up for a store card and in return you’ll get 20 per cent off your shop. You won’t have to pay for the shopping there and then, and so if you KNOW FOR CERTAIN that you’ll be good for the money in a month’s time when the bill comes through your door, then it could be worth harnessing this opportunity for a decent discount.
However, there have been numerous store card horror stories in the past, with many people signing up for things that they didn’t mean to. While this has never happened to me, I have read about people who despite not using the card for months and months after paying off the initial bill on time, received monthly “dormancy fees” for failing to do any shopping on their card in the months after.
Martin Lewis, the money saving expert, advises cancelling unused store cards to tidy up your credit score. In some cases you can just send the provider an email asking to cancel, but in many cases it isn’t that easy – because they want your money! Many providers will tell you to call them if you want to close your account, but often they’ll charge you a per minute that you’re on the phone. To avoid these expensive numbers, I use Say No To 0870 which will offer you an alternative number to call for free.
Register to vote
If you’re not registered to vote then you’re likely to find it extremely difficult to gain access to a mortgage. So don’t delay, and sign up to the electoral register as soon as you can.
It’s really easy, so it’s worth doing as soon as you have five minutes. All you need to do is go to the Gov.uk website and update your details. If you have a National Insurance number, you’ll need that to hand.
Don’t make the mistake of thinking that you’re on the electoral role just because you voted years ago or have received a letter through the post in the past telling you to vote.
If you’ve changed addresses in the last year or so then it’s definitely worth chasing up so that you’re registered at the right place.
Sometimes it’s possible to be registered at more than one place. This is particularly common if you live in student accommodation during the week and at your parents at the weekends or holidays, for example. To keep things neat and tidy though, once university is over it’s probably best to ensure you’re just registered at your current address. This may mean having to email or call the local council that you no longer want to be connected to so that you can ask them to cancel.
Don’t let your lover’s poor credit score ruin yours
If you have a joint bank account with your other half, and they have a history of poor credit, then you may struggle to get a mortgage because of this. It’s often best to keep your finances separate to avoid this from affecting your application.
Joint mortgages, joint loans and in some cases, energy bills with both your names on can also cause problems.
If you have split up with someone who you’ve shared joint finances with before, it’s worth writing to the credit reference agencies to request a notice of disassociation. This will prevent your former partner’s finances (past, present and future) from affecting yours.
Don’t apply for credit shortly before a mortgage
If you can, avoid applying for credit in the three-six months before applying for a mortgage as this can affect your mortgage chances and sometimes may even result in you getting rejected.
When you apply for credit (such as a credit card, phone contract or a loan) lenders will search your credit file to assess whether you are eligible or not. And each time one of these searches happens it will be recorded on your file. The more searches done in a short space of time, the more likely you are to struggle to obtain a mortgage, as your potential mortgage lender will be more likely to assume that you’re borrowing to repay debts.
Of course if you have an understanding lender who assesses applications on a case by case basis, they’re more likely to be a little lenient and will probably understand if you tell them that you’re just trying to boost your credit score.
There is no universal credit score
It’s worth noting that there is no such thing as a universal credit score, and credit score providers such as Equifax and Experian offer completely different scores. So while 450 might be a great score with one company, it could be bad with another.
Lenders will contact credit score providers in order to make their decision, but your score isn’t the only thing that they’ll take into account. They’ll also look at your salary, your outgoings, your deposit and the size of the loan you want to take out. They’re also likely to ask to see several months’ bank statements to assess your spending habits.
Good luck on your mission to improve your credit rating. Let me know how it goes and please share your credit boosting tips in the comments below! J
