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Common misconceptions about credit scores

We've taken a look at some of the most common misconceptions around credit scores, and how you can help improve your score.

Common Misconceptions About Credit Scores

Misconceptions about your credit score

If you’re planning to buy your first home then you’re probably saving hard for a deposit, researching suitable areas to buy and even visiting show homes or browsing the internet for suitable properties.

But there’s another important factor that will affect the kind of mortgage you are able to get, or even whether you qualify for one at all, and that’s your credit score.

A future mortgage lender will consider your credit history and most will look at your credit score when deciding whether they can lend to you, so it’s important to give it some thought now and do what you can to enhance it.

It’s important to note, that not all lenders check (or base their decision on credit score), so taking expert advice before you apply for a mortgage may stand you in good stead despite a poor credit history. Nevertheless, improving it is something you should consider.

When it comes to credit scores, there can be a lot of misinformation out there and it can be hard to know what to do to improve your score. But don’t panic; once you understand credit scores it is actually quite simple to boost yours.

What is my score and why does it matter?

What’s my credit score?

It’s really easy to get hold of your credit score. There are three main credit reference agencies – Experian, CallCredit and Equifax – and they will all provide a copy of your credit report for as little as £2, that’s your legal right. There are other options, like Clearscore.com and Noddle.co.uk, that let you check your score and view your report. 

Most will also offer a credit monitoring service for a monthly fee, which you can then check whenever you like. If you have work to do to improve your score then this can make more sense than a one-off report.

So, once you know your score it’s time to improve that number so you have the best chance of getting a mortgage. We’ve looked at some of the common myths around credit scores, as well as some top tips on boosting that score.

Why does my score matter?

Your credit score has always mattered when applying for a mortgage but in recent years it’s become even more important. The financial crash made lenders more careful and, since then, tighter new mortgage rules mean that lenders have to show they have checked each applicant could afford their repayments.

That means that a good credit score can play a key role in whether or not you qualify for a mortgage. It’s not the only thing a lender looks at, of course; they will also factor in your income, outgoings, other debts, the value of the property itself and the deposit amount you have available, but without a good credit score you won’t look like a good borrower.

Common credit score myths

Borrow Money

 

 

Mortgage Application

 

 

Previous debts will always show

I’ve never borrowed so my credit score must be good

You might assume that if you’ve never been in debt your credit score will be great, because that shows how responsible you are. Unfortunately, that’s not always the case; lenders may sometimes ask for evidence of you managing credit responsibly.

If you’ve not had bills in your name or used a credit card or loan then it might be a good idea to apply for a credit card and use it for purchases that you then pay off monthly. As long as you clear the balance each month (essential or you’ll pay a fortune in interest), this is a free way to prove you are a reliable debtor.

If you are struggling to get credit, it might be worth considering a credit builder credit card. This is a type of card available to people who may not be accepted for mainstream credit, usually down to having a bad credit history, or no credit history at all.

They give you access to credit and providing you make the repayments on time every month, enable you to prove you can manage credit responsibly thus boosting your credit rating.

The previous tenant has damaged my credit score

People often think their home has been ‘blacklisted’ by the poor borrowing behaviour of the previous tenant but this is not actually how it works. Unless they were financially connected to you, i.e. married or with lots of joint financial product, then it doesn’t matter what their financial status was.

I can’t see what a lender can see

No lender has the right to see information on you that you can’t see yourself. The information held in your credit report is the information a potential lender will access when you make an application, so you can see it in advance.

If you apply for lots of mortgages then at least one will accept

Don’t apply for several mortgages at once in the hope that at least one lender will agree. In fact, making an application for credit can temporarily depress your credit score, which can mean multiple applications prevent you from qualifying for any loan. A good mortgage broker can help you choose the lenders most likely to accept you.

Previous debts will always show

This is not true. Your credit score and credit history are intended to show lenders how reliable you are now, not whether you made a bad mistake and got into debt when you first turned 18. Information is typically held on your credit file for six years only, and you can take steps to improve your score even if you do have some recent glitches.

How to improve your credit score

So, you know your credit score and you know you want to buy a house. How can you make your credit score better to impress a lender? Fortunately, there’s a lot you can do:

Clear your debts

While you do need to have used debt to have a decent credit score, you also need to show you can use it responsibly. If you have a lot of outstanding debt, even if it’s just lots of small loans or card balances then do what you can to pay them off. Clearing debt is a great way to improve a credit score.

Close down unused accounts

Do you have several credit cards or store cards for emergencies? Do you keep a large overdraft offering on your account even though you don’t need it anymore? The more debt you have access to the less lenders will want to lend you even more just in case you get into difficulties. Close down any unused accounts immediately. 

Get on the electoral roll

No lender cares whether or not you’re politically active but they do need to know that you live where you say you live. Being on the electoral roll is an easy way to prove that and a quick win for your credit score.

Pay on time

 By making payments on time, or even paying them early if you can, you prove you’re a sensible borrower.

Use a credit card

As mentioned in the myths section, you can build up your credit score by using a credit card and clearing the debt each month. Just make sure you do pay it off or you’ll pay a high interest rate and may worsen your credit score.

Check your file for mistakes

Sometimes errors happen, don’t let one cost you your mortgage. Check your reports from each of the three credit reference agencies and make sure everything is accurate. If you find a mistake then report it and get it sorted before you apply for a mortgage or any debt.

Check your report

Regularly checking your credit score and file allows you to ensure that your hard repair work is paying off, but it also lets you make sure that an identity thief hasn’t stolen your details and is running up debts in your name. You wouldn’t normally be responsible for a fraudster’s debts, but it could delay a mortgage application while the issue is resolved.

This guide to mortgages was produced in collaboration with L&C Mortgages, the UK’s largest fee free mortgage broker and adviser.

Close down unused accounts

 

 

Use a credit-builder credit card

 

 

Check your credit report

 
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