If you’re planning to get a new mortgage or remortgage, it’s worth starting to manage your credit file at least a year in advance of any applications. The world of credit scoring and lending can be a confusing one, so it makes sense to get your head around what lenders are looking for first. In short, think about your credit file vs a set credit score – which doesn’t really exist as each lender has a different means of ‘scoring’ you. Same goes for making the distinction between being ‘wealthy’ (not needing credit) and being a responsible borrower. Try to see your financial position through the eyes of a lender – they want proof that you can borrow responsibly and, ultimately, make them some money. Here are a few tips below to help improve your credit score.
Regularly check files
Make a habit of doing this annually and most definitely before any lending applications. You’re looking for errors on your file that may severely and unfairly impact on the success of your application. The credit reference companies to check are Equifax, Experian and TransUnion and since the new GDPR rules came in, it’s now always free to make these checks and receive the financial information held on you.
Register to vote
You need to be on the electoral roll so that lenders can check and trust you are who you say you are. Make sure you register as soon as possible. If you’re worried about your personal information, you can always opt-out of the open register, which can be used for marketing. If you aren’t eligible to vote in the UK, send all three credit reference agencies proof of residency via utility bills or driving license.
Make timely payments
Setting up direct debits for utility bills, mobile phone contracts and credit cards can help make sure regular monthly payments are made on time. You want to avoid missed payments at all cost as these can give a very negative impact when it comes time to borrow, particularly missed payments in the last 12 months. If you are in difficulty, contact your lender who will hopefully try to help manage your repayment schedule.
Keep finances separate
The credit file of those who you are linked with financially – via a joint mortgage, joint loan, joint bank account, even joint utility bills – can impact on your own file too. If your partner has had trouble in the past, it might make sense to keep finances separate until back on track. If your relationship ends, make sure to close joint accounts and write to credit agencies for a notice of disassociation.
Consistency and stability when it comes to applications
For example, it’ll be easier as a homeowner vs a renter, employed vs self-employed, to gain credit – the more stable your circumstances, the more stable your financial position. However, there are other simple ways to make yourself appear more consistent, such as using the same job title and phone number, can minimise the potential for you to be flagged up by fraud scoring.
Time applications carefully
Every time you apply for credit, it leaves a footprint on your file for a year and too many in succession can leave you looking like an undesirable applicant, desperate for credit. It makes sense to prioritise credit applications ie. the mortgage application before a new credit card. Same goes for waiting until old marks on your file will have clearer ie. 6 years post-bankruptcy or applying before a major life-change that will put strain on your finances such as having a child and going on maternity leave.
Clean up old accounts
Make sure to cancel any old store cards, even if they are unused, as too much available credit can be a negative on your file. Old utility and mobile phone contracts with previous addresses on them, that are still active despite you not using them, can be a nightmare as they throw a spanner in the works when it comes to verifying your ID, so make sure to tidy up old business.
Credit card management
Even though you feel responsible, having never had a credit card and never having to borrow money, for lenders this only means you are a too much of a mystery to trust! A better idea is to build up a credit history, responsibly, by making regular payments on a credit card. If you’re in a cath-22 where you struggle to gain a credit card in the first place, there are credit rebuild cards available, albeit with sky-high interest rates, that can help you build up a decent credit history if well-managed. Avoid withdrawing cash on credit cards – a major red flag to lenders!
Avoid payday loans & credit repair companies
These are bad news, as they are a direct example to lenders that you have poor money management. People can find themselves in a desperate financial state at times but there are better ways to manage this, for example by approaching a non-profit debt counselling agency, for example.
After a rejection…
Avoid a vicious cycle of application and rejection by trying to understand as best possible why you might have been rejected by checking your credit file again for clues. Any errors you can try and dispute with the bank or utility company directly. If you don’t get anywhere with this approach, time usually heals the damage done, so make sure you wait the appropriate length of time according to the offence before making another, hopefully successful, application.
At The Mortgage Hub we can help you with your mortgage application and advise you on what to do if your credit score isn’t as high as lenders’ requirements. We’re here to help.
The Mortgage Hub is an independent mortgage advisor serving the greater Glasgow area. Whether you are planning to buy your very first home and need the right first time buyer mortgage, or are looking to re-mortgage due to a house move or to growing family – we understand your journey is so much more than a financial process, it’s a journey to achieve your dreams, improve your lifestyle and achieve your true potential.