Updated: Nov 23
Are you thinking about buying your first home or perhaps looking to move but worried whether your credit score will hold you back from securing a mortgage? Don’t panic! Fortunately, there are steps you can take today that will help you in improving your credit score and increasing chances of successfully obtaining your desired mortgage. Here we aim to outline some important tips and tricks for giving yourself the best chance at getting approved for a loan.
Check Your Credit Report:
There are three credit agencies - Equifax, Experian, and TransUnion - that hold your credit reports. To ensure nothing is overlooked, we recommend checking all three reports at least once a year.
Experian – offer a 30 day free trial but will charge a monthly fee thereafter.
Equifax - Use ClearScore for free access to your Equifax report.
TransUnion - Credit Karma gives you free access to your TransUnion report.
Prove Your Address History:
Make sure you register on the electoral roll at your current address. No matter if you are in shared accommodation or living with your parents, you can still complete this important step. If you have recently moved, make sure to register to vote at your new address as soon as possible. Councils share voter data with credit reference agencies on a monthly basis, so doing this can improve your score within just eight weeks.
Meet Your Commitments:
Ensuring prompt and complete payment of your credit commitments (including car insurance which is paid monthly, mobile phone contracts etc) every month is a valuable way to demonstrate your trustworthiness as a borrower and your ability to manage credit responsibly. Additionally, maintaining well established accounts has a positive effect on your credit score. However, it is important to be aware of the potential consequences of having unused credit cards, which we will touch on later.
Build up Your Credit History:
Without a proven credit history record it can be challenging for companies to evaluate you and your credit score may suffer as a result. This is a common issue for young individuals and newcomers to the country. Fortunately, there are steps you can take to establish a solid credit history. One effective strategy is to responsibly use a credit card but, to avoid paying any interest, be sure to pay off the entire balance in full each month.
Avoid taking on too much debt:
Understanding your credit utilisation is crucial for maintaining a healthy financial profile. Credit utilisation refers to the percentage of your credit limit that you are currently using. For instance, if your credit limit is £10,000 and you have spent £3,000, your credit utilisation would be 30%. Lenders generally view a lower utilisation percentage positively, resulting in an improvement in your credit score. Ideally, you should aim to keep your credit utilisation below 30%. Remember, this percentage applies to the combined credit utilisation of all your credit cards. So, if you have multiple cards, ensure that their total utilisation rate remains below 30%.
Break Financial Association with others:
Did you know that if you have a joint bank account or share debt with someone, their credit rating can impact yours? This may pose a challenge, but taking steps to sever these financial ties with someone who has a low credit score could actually improve your own credit score in just one month.
Avoid Multiple Applications:
If you have been denied credit, it is important to refrain from applying for more credit or borrowing right away. Making multiple applications within a brief timeframe can harm your credit score.
Comparison Sites Are Useful BUT…
Discovering quotes through comparison sites can be a valuable research tool. However, it is important to be aware that requesting quotes may result in a search appearing on your credit report. There is no need to worry though, this is known as a "soft" search and will not leave a lasting impact. Only you and the credit reference agency responsible for your credit score can see it, and it will vanish after 12 months. So, it will not affect your ability to obtain credit in the future in any way.
However while the quote itself doesn't leave a visible mark, if you decide to purchase insurance and opt for monthly payments instead of a one-time lump sum, you will need to establish a credit agreement. Paying monthly involves interest charges, which essentially means you are taking out a loan and applying for credit. As with any credit application, your overall credit rating may be influenced.
Avoid Payday Loans:
Say no more, just avoid using payday loans!
Cancel unused credit & store cards:
Managing your available credit is important for maintaining a healthy credit score. While it may seem beneficial to cancel unused credit cards, there are factors to consider. Closing long-standing accounts with good credit history could lower your credit score, so it is best to strike a balance. If you have excessive unused credit or store cards, closing those which you have no intention of using again can be a good idea. It is crucial to avoid maxing out your credit cards as well.
If you are looking to reduce credit card debt costs, rather than applying for a new card consider transferring debt to your old cards if they offer favourable terms. This allows you to use your existing credit more efficiently and positively impacts your credit file.
In summary, it is vital to keep on top of your credit report and score. Understanding your own credit status should be your first step before seeking a mortgage Agreement in Principle, so taking the time to consider how it works and what affects your credit score will only help you achieve a positive outcome with your mortgage. If you have any further questions regarding your own mortgage options due to your current credit situation, our experienced team are here to help – contact us today!
Your home may be repossessed if you do not keep up repayments on your mortgage.