Whether we like it or not, lenders make a judgement on us when we want a mortgage. To stand a chance of getting on the housing ladder, your credit score has to be above a certain level, which can pose a problem for some.
Perhaps you aren’t even sure what a credit score is, never mind how to give your own a boost in time for a mortgage application. If so, keep reading…
Let’s clear up the term first
You’ll hear the terms credit score and credit rating used interchangeably. They’re essentially the same thing.
Everything you borrow and every repayment you make on the debt affects your credit rating/score.
You might have a credit card or a regular debit one – it doesn’t matter. Bills for rent, insurance, phone contracts, Spotify… practically anything that drips out of your account is classed as credit-worthy information. It tells a lender how good you are at paying back what’s owed.
Missing deadlines, or straying into an overdraft too often, harms your score. Your rating will steady and eventually climb if you pay what you’re meant to, when you’re meant to.
YOUR RATING WILL STEADY AND EVENTUALLY CLIMB IF YOU PAY WHAT YOU’RE MEANT TO, WHEN YOU’RE MEANT TO.
A credit score follows us over our lives as we accumulate debt and recover from it.
Why do lenders care?
A mortgage is a big deal. With today’s house prices, you’ll probably lay a significant amount of money on the table as a deposit.
A lending partner must have faith in your ability to cover the rest of the cost of the home (with added interest) over the lifespan of the mortgage, which can run up to 40 years. As a result, credit checks are part of the process.
The bad score merry-go-round
Bouncing from rejection to rejection when you apply for credit can bring your rating down even further. If you continue on this downward spiral, your mortgage chances will get smaller and smaller.
You can check and monitor your rating using a credit reference agency like Experian, Equifax or ClearScore. Some charge for their service, others are free but advertise products at you.
A credit reference agency can show you how your rating has changed over time and what’s sent your rating up or down. Each assigns you a credit score, often on a scale from 0 to 1,000.
Whatever your score, using a credit reference agency gives you the chance to check your credit history for mistakes or things you don’t recognise. Where there’s a mistake or perhaps even foul play (ID theft, for example), you can ask for a notice of correction to get things cleared up.
Building or improving your score
Supposing the score is less than it should be (or non-existent) - how do you make it better?
First, you can try spending a little on a credit card each month, such as £50-£100 and repaying the full amount on time.
Special ‘credit builder’ cards can do the job just fine but be warned: they carry higher than average interest rates. If you fail to pay off the balance in full, you’ll start racking up more debt that could make things worse.
Second, keep any steady payments you can afford whilst ditching those you can’t.
Third, tiny changes can prove a benefit, such as registering on the electoral roll and ensuring your addresses on old accounts are up to date.
Credit isn’t everything
Even those with the best score can struggle to get a mortgage if they can’t afford the monthly repayments of the mortgage they’re applying for.
Credit scores aren’t the last word on mortgage applications, but they’re an important part. As such, it’s worth checking out as you get ready to apply.
When you’re ready, Mojo Mortgages can help you find a deal that suits you and your unique circumstances. We’re fee-free, hassle-free and could help you apply in just 30 minutes.