As we move into the new year, many people may be considering preparing to buy their first home, or moving to another property.
As part of any mortgage application, lenders will carry out credit checks against your credit file. This month’s article will focus on ensuring you have your credit file in the best shape possible, in advance of applying for a new mortgage.
It’s important to note that lenders don’t just assess your application against your credit score (number). They will also look to consider any additional information such as missed payments and / or defaults contained within your credit file. This helps the lender to reach a decision on whether there is any risk associated with lending to you.
Read More: The most commonly asked questions when buying a home and how to prepare yourself
All lenders have their own score cards to assess your suitability against their own criteria. These can be made up of a number of factors such as:
- Payment history on credit commitments (covering 6 years);
- Deposit size that you plan to use for the purchase;
- Amount of credit currently being used;
- Address history matching your credit file with the information on your application.
It’s important to obtain a copy of your credit report. You can access your credit report from a credit reference agency such as Check My File or Experian. This allows you to review the information held against you for accuracy. It also allows you to check that all of the payment history on any of your current or historical credit agreements is correct, and also that your address history is correct. You should contact the credit reference agencies to correct any inaccuracies.
Below are my top tips to help you get your credit file in the best shape possible, in advance of any new mortgage application.
- Make sure you are registered on the electoral/voters role. Ensure all bank accounts, credit commitments and mobile phone contracts are all registered to the same address, and show the same name format. This confirms your address to the lender and should match your credit file and information on your application
- Keep payments on all credit commitments up to date. This demonstrates that you can responsibly borrow, and most importantly, pay money back on time
- Do not apply for any new credit commitments around the same time that you are applying for a mortgage. It’s important to note that this is just as important in the period between your mortgage offering and your mortgage starting, as your offer is based upon the information disclosed at the application stage, which includes your affordability assessment
- Keep applications for credit to a minimum for at least 12 months before applying for a new mortgage. Always check when committing to any new agreements such as a new mobile phone contract, whether or not they are going to conduct a credit search (and leave a hard footprint on your file), as this could affect your application.
- Keep your credit usage (such as credit cards) as low as possible. They should not be nearing their maximum limit. You should also avoid using your overdraft (if you have one).
- Keep your overall debt low in comparison to your income. Lenders call this a debt to income ratio. The lower over-all debt from loans, credit cards and finance agreements the better.
When in the process of buying a new home, it may be tempting to apply for a new loan or credit card to pay for items such as new furniture. Avoid this at all costs. Some lenders conduct credit checks prior to the new mortgage starting, and this can have an adverse effect on your mortgage application, even if your mortgage has already offered.
West End Mortgages are authorised and regulated by the Financial Conduct Authority. Your home may be repossessed if you do not keep up repayments on your mortgage.
Graeme Nichols is the Managing Director and mortgage specialist at West End Mortgages, an independent mortgage and insurance advice company, based in the West End of Glasgow, and working with clients across Glasgow, and throughout the rest of the UK.
Once a month he will share with Glasgow Live readers advice and tips on everything mortgages and the housing market.
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