Your credit score can be extremely important when buying a new home. In the past, mortgage providers used to multiply your income by a set amount to decide how big a mortgage they would give you. However, since 2014, they must adhere to strict affordability rules to make sure that they lend responsibly.
When you apply for a mortgage, the mortgage provider wants to see that you’re good at handling your money and that you’d be able to keep up your mortgage payments, even if interest rates rose. To do this, they look in detail at your circumstances, income, outgoings and credit history to then calculate a credit score.
The higher your credit score, the higher your chance of being accepted for a mortgage for the amount you’re seeking. If you have a low credit score, you’ll find it very difficult to get a mortgage as providers will be wary of lending to you.
Look at your credit history
If you’ve never checked your credit history before, or it’s been a long time since you did, don’t delay. Navigating the Experian, Equifax and Callcredit reference agency websites is free and easy. The information held on you can vary between the different sites, so it’s advisable to check all three before you make any mortgage applications.
1. Check for mistakes
Is something on your record that shouldn’t be? Does one of your bank accounts still have your old address? Perhaps your name is spelt wrong somewhere? Getting these mistakes corrected by contacting the credit reference agencies only takes a few minutes but can make a big difference.
2. Close accounts you don’t use
You may find that you see bank accounts, credit cards or store cards on your history that you don’t use anymore. If this is the case, get them cancelled or closed as soon as you can. Mortgage providers are looking at how much available credit you have and how much of it you have used. For instance, if you have an unused credit card with a £4,000 limit or an unused bank account with a £2,000 overdraft, this could count against you, while it is advised that you try to keep your debt below 50% of your total available credit.
3. Manage your available credit
The amount of available credit you have is the amount you have to spend on your credit cards and overdrafts. Lenders will be more attracted to you if you don’t have too much credit and aren’t too close to your credit limit. Lowering your avaliable credit is never a good idea as you’ll be closer to the edge of your limit, while having thousands of pounds of unnecessary credit will set the lender’s alarm bells ringing.
4. Apply for a notice of disassociation
On your credit history, you’ll be financially linked to anyone you’ve shared a financial product with in the past, whether it’s a former partner, housemate or family member. This means that their credit history can impact on yours, so it’s worth asking for a notice of disassociation, especially if they’re bad at managing money and frequently miss payments. If you have a joint loan with a former partner, you won’t be able to be financially split until it’s been paid off, so make this a priority.
5. Make all your payments, every time
You want to show that you’re excellent at managing your money, so don’t make any payments late. Whether you’re paying rent, a utility bill, mobile phone bill or for contact lenses, every payment counts. Any missed payments will show on your credit history (even if you were only a day or two late) for seven years, so can have an impact on your credit score long term.
If you can see missed payments flagged on your credit history, you do have the option to add brief notes. This can be a useful way of conveying to the mortgage provider, and other lenders who check your credit history, why you missed the payments.
For instance, you can explain if you were made redundant or were wrongly charged for an account you’d asked to be closed.
6. Register to vote
One way a mortgage provider will confirm your identity and address, is by checking the electoral register. If you’re not registered to vote, you’ll struggle to get any form of credit, so do it today by visiting the Gov.uk website. You’ll need to know your National Insurance number and answer a few simple questions. If you’re a non-European foreign national, you won’t be able to register to vote, but you can send the credit reference agencies specific documents that prove your residency instead. They can then add a note to your record, which can be seen by the mortgage provider.
7. Have a decent deposit
You might be able to apply for some mortgages with a deposit of just 5%, but the bigger your deposit the better.
Not only will you be showing the mortgage provider that you’re good at saving, you’ll be deemed less of a risk, as you’ll have more equity in the property.
8. Don’t apply for more credit
When you apply for a form of credit and a lender checks your credit history, a mark is left. If you make several applications within a short period, this can look like you’re desperate for money.
For this reason, it’s best that you don’t apply for any form of credit in the months leading up to your mortgage application.
If a mortgage provider rejects your application, you can still apply again elsewhere, as different providers have different criteria.
Make sure you don’t make multiple applications all at once and if you keep getting turned down, look at how you can improve your credit score further before reapplying.
9. Pay off your debts
If you owe money, now is the time to pay your debts off. If you have several debts and struggle to keep track of your monthly payments, set up direct debits so everything comes out automatically and you don’t miss anything. You want to be making more than the minimum payments each month.
It’s much better to hold off applying for a mortgage until you’re financially secure, as you’ll be less likely to be turned down.
If you’ve been bankrupt or had a CCJ or an IVA, it will show on your credit history for six years, so it might be worth waiting until it’s no longer visible before applying for a mortgage.
- A CCJ is a County Court Judgment against you for non-payment of a debt.
- An IVA is an Individual Voluntary Arrangement you agree to manage repayment of a severe debt to avoid being made bankrupt.
This guide to credit was produced in collaboration with L&C Mortgages, the UK’s largest fee free mortgage broker and adviser.
If you’re ready to buy off plan in London, click here to search our available developments. And don’t forget that, whether you’re a first-time or existing buyer, we have a wide range of offers to help you make your next move.
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