How To Improve Your Credit Score For A Mortgage
As a mortgage broker one of the most common questions I get asked is ‘What credit score do I need to get a mortgage?’.
I’ll start this blog by saying something controversial…
Your credit score doesn’t matter!
Don’t get too excited… the content of your credit report DOES matter and the score given is a reflection of the content held within you credit report… sorry to burst your bubble.
But don’t worry, below I will explain how you can improve your credit score, how mortgage lenders actually use your credit score and why you shouldn’t be too caught up on what your score is when looking for a mortgage.
Mortgage Lenders Can’t See Your Credit Score
You’ll probably be surprised to learn that mortgage lenders don’t actually see your credit score – this is for your information only, it’s there to give you an idea of how ‘good’ or ‘bad’ the information about you may be viewed by lenders.
Mortgage lenders obtain their information from 3 main credit reference agencies: Equifax, Experian and Call Credit. All 3 agencies have a different scoring system, as do mortgage lenders.
That’s why when someone asks what credit score do I need to have to get a mortgage I tell them it doesn’t work like that.
So How Do Lenders Use Your Information
Lenders are assessing you against their own criteria and internal score card system and unfortunately every lender is different.
They use the information provided on your application alongside the information held on your credit report to make a decision. Points can be scored for things such as how long you’ve been at your address, how long you’ve been in your job, your salary, your deposit etc etc.
You could have a really high score and still be declined if there is something held on your credit report that doesn’t meet their criteria (Such as adverse credit). Which is why it’s so important to speak to a mortgage broker to ensure you are applying to the right lender.
How Can I Improve My Credit Score?
Below are just some of the ways in which you can make your report more appealing to lenders and increase your chances of being accepted for a mortgage but you should speak to AL Mortgage Solutions for advice on your individual circumstances for tailored advice.
Register To Vote
Not only will this increase your credit score, some lenders will automatically decline an application if you’re not on the electoral roll. Being on the electoral roll allows lenders to verify you have provided the right address and also shows stability.
Apply here: https://www.gov.uk/register-to-vote
Check Your Addresses Match
Have a look at any open accounts and make sure the addresses match your current address. If you opened an account and since moved home there is a chance the address is wrong and showing on your credit report as the old address. This can have an impact on your credit score.
Pay Your Bills.. On Time
This is common sense, but even having a 1 month late payment on your credit file can cause you to be declined for a mortgage. If this is an error, see if you can have it removed. Some bills, such as council tax do not appear on your credit file.
Avoid Pay Day Loans
Most mortgage lenders will automatically decline an application if there is a history of payday loans, especially within the last 24 months. The use of payday loans in the eyes of a lender shows that you are potentially living beyond your means or not managing finances properly. Even if there was a legitimate reason for this at the time such as during a change of job etc. Lenders can’t see WHY you used it, only that you did. Seek alternative finance, such as a credit card or overdraft facility.
Remove any financial associations that are no longer in place. Especially if the person may have ‘bad’ credit. I have come across situations where a client has a ‘Excellent’ credit score but still being declined for a mortgage due to a financial association with a ex partner who had bad credit. Once the link was removed I had the mortgage accepted.
If you have a low score taking out a credit card can be really effective to help improve your credit score. Also, a lot of providers allow you to conduct a soft search to see if you’d be eligible before applying and leaving a footprint on your credit report.
Once you’ve got your credit card, use this for day to day spending and set the money aside to pay it off. You shouldn’t pay the card off in full immediately as this will not show on your credit report as you ever owing money and therefore you do not have any track record of being a ‘good payer’.
Close unused credit cards that have a big available balance as this can be perceived as a risk to lenders. You have the potential to get yourself in to debt really quickly.
If you have Defaults or CCJs these will show on your credit report for 6 years. Timing an application correctly after having adverse credit is really important when applying for a mortgage. A lot of mortgage lenders will not consider lending to you if you have any adverse credit within the past 24 months, but every lender is different and you should speak to us for advice on your individual circumstances as we may still be able to help.
If you have defaults on your credit report these should be settled. Speak with the creditors directly and ask if you settle them could they make it part of the settlement deal that the default is removed from the file. If you don’t ask you don’t get!
County Court Judgements (CCJs) can be devastating to a mortgage application and more worryingly most people don’t realise they have them. They can be issued for things such as car parking tickets and fines. There are certain circumstances where these can be removed (set aside). Speak to us for guidance on this.
Don’t Apply Too Many Times
This can become a vicious circle, if you apply, get declined and keep applying this can damage your chance of being accepted if a hard search has been completed and you keep applying to the wrong lenders – you don’t want to look desperate!
You need to speak with the right mortgage broker in the first instance so we can match your individual circumstances with the correct lender.
Reduce Debt With Savings?
If the aim is purely to improve your credit score, then debts should be cleared using your savings. However, this may not always be the best option when looking at a mortgage as a bigger deposit may improve your chances of being accepted and also allow you to obtain a cheaper interest rate so speak to us first before taking action on this one.
As you can see from above you shouldn’t be too caught up on the actual score showing on equifax, experian or any other credit reference agency because mortgage lenders are more concerned with the content of the report rather than the score. They will also be using their own scorecard in the assessment of your mortgage application.
Keep you eyes peeled for our next blog on how to improve you chances of being accepted for a mortgage where we look at other factors aside from credit history.
If you want tailored advice on how to improve your chances of being accepted for a mortgage or whether you are eligible for a mortgage now then don’t hesitate to contact AL Mortgage Solutions
Or visit our office:
35 Eccleston Street (Inside Brooks Estate Agents)
We are Prescot based independent mortgage brokers covering all of Liverpool and surrounding areas.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.