It’s a common question asked by clients looking to purchase a home and credit scores do play a part in obtaining a mortgage as it plays a huge role in which lender you can approach for your mortgage and how much deposit you will require.
Below I cover off some necessary information about credit ratings and also how you can potentially improve your credit rating.
Which agency you can use to check your credit rating.
Mortgage lenders typically use one of the following three credit agencies to score you when you apply for a mortgage, and some lenders use a combination of all three organisations.
Experian
Call Credit
Equifax
How do I know if I have a good credit score?
Each of the credit agencies uses a score band to define what is a poor credit score and what is a good credit score.
| Experian | Equifax | Call Credit |
| Very poor: 0-560 Poor: 561-720 Fair: 721-880 Good: 881-960 Excellent: 961-999 | Very poor: 0-279 Poor: 280-379 Fair: 380-419 Good: 420-465 Excellent: 466-700 | Very poor: 1 Poor: 2 Fair: 3 Good: 4 Excellent: 5 |
How to improve your credit rating.
If you have an excellent score that’s great, but if you need to improve your credit file below are some tips which can help increase your credit rating over the next 6 – 12 months.
1.Register onto the electoral roll.
If you have not registered on the electoral roll, this can have an adverse effect on your on your credit score, I have personally seen client scores go from good to excellent once they have registered.
Being registered enables the lenders to confirm that you are who you say you are and that the details you have provided are correct and match up with the information the credit agencies have.
Everyone is informed how important this is, but it’s easy to forget, If you have moved between addresses, Even moving away from home to move back in then and not remembering to register.
You can register online at gov.uk.
2.Never make a late credit payment.
I have come across countless people who forget to make a payment, the easiest way to remember to pay your statement, is to set up a direct debit to make your minimum deposit, and then if you are in a position to you can put more towards it each month.
Missing a payment on any form of credit can seriously affect your rating, and it’s your responsibility, not the credit companies.
3.Pay your fines.
I’ve encountered many people who have ended with a county court judgement (CCJ) on their credit file due to the neglect of not paying a parking ticket.
By not paying £30 parking ticket which might seem like an annoyance but not as much as knowing you’re having to now pay thousands more due to the damage done to your credit file.
Simply pay the fine and contest it afterwards if you may it will save you much more money in the long run.
4.Check if an association is causing you problems.
This is not as uncommon as you may think to encounter many clients who had joint accounts or credit with an ex-partner and when they have split the other party has kept the car for example and not made payments on the loan so, in turn, this has given them credit problems and also yourself.
Always aim to keep your finances separate.
5.Pay off your existing debt.
If you have lots of outstanding debt owed on credit cards or loans, you should try to repay or reduce these before applying for a mortgage.
A lender may not want to let you borrow or simply decline the application if you already have a substantial loan in proportion to your annual income.
6.Avoid Payday Loans.
I can dispel a myth that they will help your credit rating they don’t, there is a lot of miss information out there about payday loans, but they just don’t help you in obtaining a mortgage.
They are not viewed favourably by lenders, and in some cases, they lead to a straight NO! from the lender.
They can demonstrate a lack of ability to handle your money correctly, and most banks will instantly decline an application if you’ve had a payday loan recently.
Call 0115 896 9776 or Email: info@harmonyfs.co.uk if you’re looking to speak to an advisor.
Your home may be repossessed if you do not keep up repayments on your mortgage.
