Your credit file - haven’t read it in a while?
First published 01 December 2014 • Updated 07 February 2018
What should be top of your list before you apply for a mortgage? Matthew Harris, director of Dalbeath Financial Planning, says that checking your credit file can often make a huge difference to the amount banks are willing to lend you.
The banks are looking at the credit score of mortgage applicants more than ever, and even a small issue can have a big impact on how much you can borrow and how much you pay in interest. You may have never missed a payment, but that doesn’t mean there is nothing you can do to improve your chances of getting a loan at the lowest rate possible.
The headline credit score at the top of a credit report is not that useful, and the banks don’t pay much attention to it. What matters is the detail in the report itself. Your local IFA will be used to looking through credit reports and spotting problems, so consider getting advice early on in the mortgage process.
What to look for
Here are 5 important things you and your IFA should check:
1) Make sure you are on the electoral roll at your current address. Banks want to see this as it gives them confidence that you really live where you claim to live.
2) Ensure all the bills you receive come to the same address. Banks hate to see a phone or credit card bill still being sent to an old address as it implies you might be trying to avoid paying it.
3) If you have no credit card, mortgage or other borrowings at all, the banks will not have enough information on you to lend you money. In this situation it is worth getting a store card or credit card, spending a small amount on it each month and repaying it in full each month.
4) If you do have an active credit card then make sure you close any other old, unused credit card and store card accounts. Lenders add up how much you could borrow on all your cards, not just how much you have borrowed.
5) Check that you are not “financially associated” (perhaps via a joint bank account) with anyone you shouldn’t be. If the other person has a bad credit record that will affect you.
Remember too, that it is common for mistakes to appear on a credit file. These can be corrected but it takes a few weeks for the correction to appear, so the earlier you catch this the better.
Think carefully before applying for more credit and get advice first. Each time you apply for a loan or other form of credit, a note goes on your credit record, and too many of these make banks nervous. More importantly, a small new loan can have a big effect on your ability to get a mortgage. For example, buying a new sofa on HP, with £50 per month repayments, may not sound that significant; but it will generally reduce the size of mortgage that banks are willing to give you by about £10,000. That’s one expensive sofa.
So, as early as possible in the mortgage process, seek professional advice from your local IFA. It can usually cut your monthly mortgage payments significantly, and really can make the difference between getting your dream house or missing out.
Matt Harris, director of Dalbeath Financial Planning, is a qualified independent financial and mortgage adviser. Matt advises clients on all areas of their finances, including mortgages and life insurance, but particularly specialises in pension and wealth management.
If you’re trying to get a good mortgage deal, a lot depends on your credit score. You can check your score, see how it might affect your prospects and even find out how to improve it at Experian. Get your free credit score.