A strong credit profile is a key step in convincing lenders to grant you a mortgage to buy your own home.
There are many reasons why aspiring buyers’ credit ratings can be far from perfect—sometimes even when they’ve never missed loan or bill repayments.
But there are things buyers can do to boost their chances of getting a mortgage, however good or bad their credit history.
Check your credit score for issues
The first key step is checking your credit score with the three main agencies whose reports lenders typically look at—Equifax, Experian and TransUnion. Each lender’s system and scoring is slightly different.
New rules mean you should be able to see your score for free. Even if you know you’ve never missed payments, issues from a lack of previous credit or electoral roll information to the actions of former housemates and partners or fraudsters may have hit your scores.
Lenders’ requirements vary, but you can probably relax if you score ‘excellent’ and you keep up payments.
If your score is lower, dig deeper to see what the exact issues are and if needs be contact the credit agency, lender or other company referenced to find out more.
Fixing errors can be difficult, but agencies and lenders do typically have dedicated processes for customers to follow if they want to flag or dispute problems.
If the lender or agency won’t fix the issue or you need some progress while you wait, you can ask for a ‘notice of correction’ on your credit file. Agencies let you write a short summary explaining any issues on your report, which lenders are supposed to take into account when reviewing the file.
Establish good patterns
Mark Harris, chief executive of mortgage broker SPF Private Clients, told Yahoo Finance UK those seeking a mortgage should establish a “pattern of consistent payments and responsible credit usage.”
It can help overcome past problems. “Most credit profiles can obtain a mortgage. Credit blips are viewed less harshly over time, especially if your financial situation has improved since those indiscretions,” he added.
Even a lack of any previous borrowing can count against an applicant. Harris recommends applying for a credit card, using it and repaying in full reliably every month to generate a good credit profile.
Barclays bank advises staying well within credit limits on a new card and paying back more than the minimum.
But those looking to buy as soon as possible are in a bind, as experts generally warn against applying for credit in the months leading up to a mortgage application.
Closing any old or unused credit accounts is also encouraged to boost your score. Meanwhile payments to energy, water, phone and other companies are also likely to be picked up in your report, so keep up payments if you can.
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Register to vote
Registering to vote is probably the simplest way to boost your rating, with applications taking just a few minutes to fill out online.
It is “almost impossible” to get a mortgage without being on the electoral roll, according to MSE, as lenders use it for identity checks even if your credit score is perfect.
If you are not registered, doing so as soon as possible is advised. If you are currently registered but plan to move again before buying, bear in mind any new registration will take longer to appear on your file than it takes to be removed for your old address.
Declare issues and seek help if needed
“Make sure you declare everything,” said Harris about highlighting issues to potential mortgage lenders.
“If you hide credit issues, it will look bad and if you had issues it will be useful for the lender to understand why these occurred and what changes you’ve made to ensure they don’t happen again.”
Similarly Barclays advises notifying lenders or others you owe if you are likely to miss a payment before you do so, this way a new payment plan or other options can be explored.
Holidays on existing mortgages up to six months should not come up as missed payments on your credit file under COVID-19 rules for lenders, but check - and note deferrals beyond that may appear.
Be aware who you’re linked to
If a mortgage application is by more than one person, Harris advises making sure all applicants have done what they can to improve their histories as both will be factored in.
Individual credit histories are also affected by people applicants are or have been linked to, from partners to former housemates. “Any late payments or misdemeanour they've committed will reflect badly on you,” warns the MoneySavingExpert (MSE) website.
MSE urges de-linking from people you have nothing to do with, closing any joint accounts and writing to credit agencies asking for a notice of “disassociation.”
Consider alternative lenders or options to get on the ladder
Harris notes some major lenders are more concerned than others by lower credit scores, so don’t assume rejection by one will mean rejection by all. Its significance to them will likely depend on the type, time and value of the money involved, he added.
Do some research or speak to an independent mortgage adviser or broker, and you could also explore specialist lenders for those with credit issues.
“There are specialist lenders and building societies with dedicated product offerings available for those with impaired credit. However, the borrower should expect the interest rate and deposit requirements to be higher/more stringent,” said Harris.
Another alternative is seeking to reduce the lender’s perceived risk by lowering the loan-to-value ratio - either considering less expensive properties or finding ways to boost your deposit if possible. Credit histories are just one of many factors lenders consider in approving mortgages, with income, deposits and the size of the loan among the other key factors.
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