Building, Maintaining, and Preparing your Credit Score
With the increasing number of hurdles put in front of us when arranging mortgages, it pays to get all of your ducks in a row. There is nothing more frustrating than saving up a huge deposit, earning enough to get the mortgage you require, finding your dream home, only to be let down because you had forgotten about a credit card from 5 years ago, registered to your previous address that has a small balance outstanding that you’ve not been paying as you didn’t know it existed.
Below are a few ways that you can manage your credit to make sure that you are in the best place possible to have a successful mortgage application.
What is my credit score?
If you are a first-time buyer, you might be wondering what is your credit score and how to build it up?
Your credit score is measured in different ways by different credit agencies. For most people, it is a score of up to 999. If you manage your credit well, it will lead to your credit score increasing. If you don’t manage your credit, it will likely fall.
If you print off your credit report, you will see every piece of credit that you have had for the last 6 years.
It will also confirm which addresses you have been registered at and when you were there, as well as who you have financial links with.
The credit that goes on to your report includes mortgages, loans, credit cards as well as some mobile phone contracts, energy suppliers, and television subscriptions.
The banks will have access to your credit file when you get an agreement in principle and apply for a mortgage.
They won’t be looking for you to have a specific score, but are more concerned with the amount of debt you have and that all payments have been made.
How to build and maintain your credit score
There are lots of ways to build your credit score. The most popular bit of advice that is given is to have a credit card, pay for your supermarket shop on it and have it set up via direct debit that it will be paid in full at the end of the month. By doing this, it shows that you are responsible for your debts and can manage your finances.
Some other ways you can build your credit score include paying your bills on time. Set up direct debits on all of your outgoings such as your rent, council tax, water bills, mobile phones, and TV subscriptions. The banks will look at your account conduct and use this as a basis to predict how likely you are to pay your mortgage in the future. If you can’t keep on top of a phone bill, how are you going to pay a mortgage?
If you do have debt outstanding already, such as credit cards and store cards, make sure that you keep the debts low and don’t allow them to build up over time. If you have a £5,000 limit on your credit card and you max it out each month and only make the minimum payment, it reflects badly and will impact your credit score. If you have a £5,000 limit and you only have a balance of £1,000 at the end of the month, you are only using 20% of your credit availability and are looked on more favorably.
Don’t apply for too much credit. If you apply for several credit cards and loans, they will leave marks on your credit files showing that you have applied for credit. This can lead to a reduction in your credit score as it might appear to lenders that you are having financial problems and need to take on debt to get out of it.
If you have problems with your credit report, make sure you challenge it. Recently I had a client who had a loan with a high street bank. They were unfortunate that there was something wrong with their direct debits. It was nothing serious and within 2 months everything was back to normal. 6 months later when they applied for a mortgage he struggled as it showed he had entered an arrangement with the bank to repay his loan. This wasn’t the case and after a quick phone call the issues were removed, their credit report was updated and we were able to move forward with their mortgage.
Another thing you can do to improve your credit is to consolidate debt. By having several credit cards and loans, you will have more outgoings and a higher risk of payments being missed. You should speak to your bank about consolidating all of the debts into one manageable debt which might allow you to clear everything sooner, or lower the monthly outgoing.
What if I’m having trouble with my debt?
If you’re struggling to maintain your debts, the first thing you should do is to speak to the provider. This might be the credit card or loan company, or your bank. They all have processes in place to look after you should you need it.
There are also charities that are set up who can help with debt.
How can I access my credit report?
There are lots of companies out there who are able to provide you with credit reports. Equifax and Experian are the two main credit agencies the banks will use, but we recommend CheckMyFile as they provide a report that shows what Equifax, Experian, and TransUnion see and therefore give you a better overall picture. You can easily save the credit reports and email it to Lloyd Wells Mortgages if you need a second opinion too.
If you are thinking of buying your first home and need some advice, then do give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.
Alternatively, you can email email@example.com and let us know how we can help you.
We will discuss:
- How much you can borrow
- What that will cost
- What fees can you expect?
- How Lloyd Wells Mortgages work
- What insurances you will need
- What documentation you will need to provide
- Next steps
Your home may be repossessed if you do not keep up repayments on your mortgage.