‘Help! My bank has declined my mortgage because of my poor credit score’. As mortgage brokers, this is something we hear all too often. Following the City regulator’s Mortgage Market Review (MMR), lenders are required to be more vigilant when checking a borrower’s spending habits and credit history. There are many ways to prevent your credit score from being a reason to be refused credit.
According to a USwitch article in November 2014, more than 30% of UK consumers – the equivalent of 15 million people aged 18 or over – have never checked their credit report. This is despite the fact many of us have credit cards, personal loans or mobile telephone contracts. One in three of those people had been turned down for credit.
A common misconception that people have is that there is a universal credit scoring system. This is not the case. Each lender – whether it is a mortgage lender, a loan company, an insurance company or similar – will carry out checks using one of the main three credit referencing agencies in the UK. They are Experian, Equifax and Call Credit. However, each one of these could reflect your circumstances differently. In addition to this, lenders will also use their own criteria when assessing applications. This could have a positive outcome for some consumers but have a negative outcome for others.
Having a good credit score will not only help you to secure a mortgage more easily, it will also determine the rate of interest you are able to achieve. If you have a poor credit score then you can usually expect to pay a much higher rate of interest.
There are some very simple steps you can take to help to protect your personal credit score.
Check your report regularly – this may seem incredibly obvious, but as we have seen from the USwitch survey, people are not doing this. Make sure you check old addresses too – you may have old credit connected to a previous address which you have forgotten to cancel.
Pay by direct debit – this will help to ensure regular payments aren’t late or missed. Late or missed payments could be noted on your credit report which could have a detrimental effect on your credit rating.
Make sure you are on the Electoral Roll – this information is pulled through to your credit report and will be checked by lenders when you are applying for credit. This is used to confirm your name and address and to help to combat fraud. If this information is missing or is not up to date, it could have a negative impact.
Resolve disputes quickly – when checking your report, you may notice that a ‘provider’ has added a late payment or a default to your account. It is essential that you resolve this as quickly as you can. Even if it is for a very small amount, it could cause problems when trying to apply for further credit.
Don’t obtain joint credit with someone who has poor credit – believe it or not, their score could affect yours if you are financially linked (with a mortgage or a bank account).
Don’t submit several applications at once – each time you apply for credit (and this can include insurance or purchases for which you want to pay monthly), a ‘footprint’ is added to your credit file. Too many applications in a short space of time may make you look like you are desperate for credit.
Cancel unused credit cards – if you like to take advantage of the new deals offered by credit card companies, such as ‘switch your balance to 0%’, don’t forget to cancel the old card. If you keep all of your credit card accounts active it will look like you have access to several thousand pounds of credit.
These very simple measures could be the difference between having a mortgage application accepted and having a mortgage application declined.
Ok, so you have taken all of the necessary steps and you are now ready to speak to your mortgage broker but you are still concerned that your credit is poor. Don’t be disheartened. Receiving a decline with one mortgage lender does not have to mean that you have no other options. Many mortgage brokers have access to a comprehensive list of mortgage products with various different lenders. This includes lenders who specialise in mortgages for people with poor credit.
Just be sure to provide your broker with a copy of your credit report and give them as much information about your personal circumstances as possible. Using their knowledge and expertise, they should be able to source a mortgage for you with a lender whose criteria will match your own financial situation.