Some of us never have to worry about our credit scores, but for others they’re a constant reminder of falling on hard times, over-spending or – dare we say it – being a little bit careless.
Today, mortgage adviser Nathan Porter is looking at ways to avoid making silly mistakes like missing payments by helping you navigate the sometimes-complicated world of credit reports.
No standing orders
It’s best to avoid using standing orders to pay bills. If it’s a trusted regular payment – think your rent, phone bill or energy payment – always set up a Direct Debit. Even the most organised person can make a mistake, resulting in a late payment being registered and your credit score decreasing.
Play the field with credit reference agencies
Experian, Equifax and TransUnion are the three main Credit Reference Agencies. Every lender/finance provider reports to at least one of the main agencies, so it’s important to check your credit report with as many as possible to find out if there are any inaccuracies.
Are you financially linked?
If you have a joint account or credit agreement with another person, like your partner or spouse, you could be financially linked. This means that if one of you has poor credit, the other person could be affected too. I’ve seen high earners/eligible customers with no previous credit issues be declined due to an association with a partner who has a poor credit score.
There are a number of ways to get round this – savings accounts don’t show on your credit report because you’re not borrowing any money, so you and your other half could open one of those instead. Just be wary of opening an account where you can borrow money, as it could show on your report.
If you find you’re linked to your partner and it’s having a negative effect, you can close the account and get in touch with the credit reference agencies to ask them to remove it. It can take up to 2 months to update your credit report.
Make sure you’re on it, and keep your address updated if you move. Easy.
Debt vs income
Remember, your credit score or report isn’t the be all and end all. When you come to apply for a mortgage, most lenders will look at your income compared to your debt to see if they’re comfortable with your existing level of borrowing.
If your debt to income ratio is too high, your application could be declined, even if your credit score is perfect, so make sure you’re borrowing within your means.
Following Nathan’s advice is a great way to get your credit report looking healthy before you apply for a mortgage. There are a few other things you can do to ensure your application is as likely as possible to be approved. Take a look at our list here.