As part of your mortgage application, lenders will review your credit score and credit report. This will provide them with vital information in terms of your financial background, how well you manage credit and make your payments. These checks which form part of the decision-making process in terms of how much they will lend to you based on your credit-worthiness. That’s why it’s so important to nurture your credit score to ensure it’s as high as possible.
What is a credit score?
Credit scores and credit reports are compiled by three credit reference agencies; Experian, Equifax and Callcredit. Each one of these companies holds a file on you, which is called a credit report. This file will contain information on all your credit accounts, for example your bank and credit cards, store cards, personal loans and any debts with utility companies. Your credit report will also show whether you have made your repayments on time and in full. If you’ve ever made any payments which were late or missed any payments or have any defaults then these will stay on your credit report for a minimum of six years.
Your credit file will also show if you have any County Court Judgments (CCJs), have been made bankrupt or entered into any individual voluntary arrangements (IVAs) or previously had a property which was repossessed. Again, any of these will also be shown on your record for at least six years.
Other less obvious things that your credit record will show are whether you’ve got a home landline and if you’re registered on the Electoral roll.
How do I find out my credit score?
It’s very easy to find out what your credit score is by going online and registering with one of the credit reference agencies. Experian and Equifax offer a free credit score check, which will take between five and ten minutes online to register for, but it’s well worth it as then you’ll find out what a prospective mortgage lender will see when they check your credit report.
As far as credit scores are concerned, the more points you have, the better your score is. And the better your credit score, the more likely you are to be accepted for a mortgage and to be able to apply for one of the more competitive interest rates available. If you have an impaired credit history, for example if you’ve previously been made bankrupt or had a CCJ, it’s possible you may still be accepted for a mortgage, but you may be offered a higher interest rate by the lender.
So, what can you do to improve your credit score?
1) Make sure you’re on the Electoral Roll – It’s free and quick to do, and you lose points on your credit score if you’re not registered.
2) Check your record and add a landline phone number if it’s missing – a lot of people don’t know that having a landline number registered on their credit file will increase their score. So check and update your information if it’s missing!
3) Pay more than the minimum on any credit card or store cards – if you’re only paying the minimum payment on your credit card each month, you’re just servicing the interest on the debt, not clearing it off, which doesn’t present you in the best light to a mortgage lender. Even if you only pay off an extra £20 or £30 a month over and above the minimum payment, this will help to increase your credit score. But better still, try to clear down any credit card or store card debts as soon as you can.
Always remember, when it comes to your credit score and credit file, it’s not about how much you earn, it’s more how well you manage the money you have.