Guide: Credit score.

When you apply for a mortgage, lenders will look into your credit history to see if you have a history of bad credit. If you do, this could affect your ability to get a mortgage. In this guide, we explain what your credit rating is all about and how you can improve it.

What is a credit score? 

Your credit score shows how reliable you are at managing your financial commitments. Credit reference agencies will give you a credit score, based on how well you manage the payments. The agencies will look at all your accounts you’ve had open over the past 6 years, including credit cards, loans, overdrafts, mortgages and some utilities.

Paying your bills on time will have a positive effect on your score, but late payments can damage your score. The reason for keeping a credit score is so creditors can check your credit files before lending to you. 

What is bad credit?

Bad credit are items on your credit file that negatively affect your profile. This reduces your score and your chances of being able to borrow, as you’re seen as high risk. 

Examples of things that will negatively affect your chances of getting a mortgage include: 

Missed payments – missed payments on credit are recorded on your credit report. If you fall behind with payments it can affect your ability to get a mortgage. Lenders will be worried if you miss 2 payments or where payments are missed shortly before applying for a mortgage. 

Defaults – usually an account is marked as a default when you fall behind on a commitment. Your account might be marked in being in default if you have missed 3-6 months of payments, but this does vary depending on the company who you owe money to.

Bankruptcy – this is a legal proceeding when you’re unable to repay your outstanding debts. Once bankrupt, you’ll go through a period where your non-essential money and assets are taken to repay your creditors.

Individual Voluntary Arrangement – this is a formal debt solution to pay back debts over a period. It’s viewed as the final step before bankruptcy and has a considerable effect on your credit rating. Even if your Individual Voluntary Arrangement has ended and is marked as satisfied, it still shows on your credit file for 6 years from the date it started. 

County Court Judgement – this is where a court case has been found against you and money awarded to the other party. If the amount due is not paid in 30 days a County Court Judgement is recorded on your credit file 

Pay day loans – the use of payday loans negatively affects your chances of getting a mortgage, as it suggests to the lender that you can’t afford your lifestyle and therefore wouldn’t be able to afford a mortgage.

How long will bad credit affect my credit score? 

Bad credit will remain on your credit score for 6 years from the start date of the default, Individual Voluntary Arrangement of County Court Judgement. After 6 years it’s removed from your report automatically even if the full amount has not been settled. 

If the debt isn’t settled, debt collection agencies might buy the debt and re-register the default years later, so make sure your credit file shows correct information and you understand what’s recorded. 

How does bad credit affect my chance of getting a mortgage? 

Some blemishes on your credit history will carry more weight than others, depending on the amounts of money involved and how much time has passed. Getting a mortgage with bad credit can be tricky but there are lenders who specialise in this area – but be prepared for higher interest rates. As mortgage experts, we can look into this for you and assess all your options

If my partner has bad credit, will it affect me getting a mortgage? 

Yes, particularly if you’re applying for a joint mortgage. Lenders tend to look at the lowest of the two credit scores when assessing you, so if your partner has bad credit, it could really affect your mortgage options.  

Is there a minimum credit score for a mortgage? 

No, getting a mortgage is possible with any credit score. Of course, a low credit score can make it difficult, but a mortgage is still very much possible. 

Your credit score is used by lenders as part of their mortgage assessment. If you have a low credit score, but a strong application, then you still have a good chance of getting a mortgage.

To have the best possible chance of getting an attractive mortgage, you should take the time to get your credit report into good shape.

How can I boost my credit score? 

There are little things you can do to improve your credit score like fixing errors on your credit report or registering on the electoral roll, but careful, long-term credit use is the most effective way to improve your credit score. 

You might think that not having a credit card will show you’re good with money, but it can, in fact, lower your credit score. That’s because lenders don’t know how reliable you’re going to be with repayments, as there’s no record of you ever borrowing.

Some things you can do to improve your credit score include:

  • Taking out a credit card and spending and paying it off in full each month to show lenders you’re responsible at managing credit. You could use it for everyday items such as transport and food. It’s a good idea to set up a direct debit so the credit card provider takes the money out of your bank account so you don’t have to remember to do so.
  • Having enough money in your account to cover direct debits and standing orders
  • Paying off debt, like loans and store cards, to improve your debt/income balance
  • Encouraging your partner to work on their credit card too, particularly if you’re applying for a joint mortgage or have a joint bank account

Are there any mortgage providers that don’t use a credit score? 

Yes, and there are some mortgage providers that will accept customers with a poor credit score and negative marks on their credit record. If you’re looking for expert advice and access to the best rates, speak to a specialist mortgage broker, like us. We’ll advise you on how to improve your chances of being accepted and find the best products to suit your circumstances. 

Can I check my credit score for free? 

Yes, sites like Experian and Clearscore let you see your monthly credit report for free. Just head to their websites and set up an account. You can then track your score and see if you can make any improvements.

Can I change a mistake on my credit file?

Yes, if you think there’s a mistake on your credit file, such as an incorrect missed payment, you can take it up with the company that registered the error. It might take a bit of time to correct the error but it’s worth it in the end if it improves your chance of getting a mortgage. Once you reckon your credit score is as good as it can be, get in touch with us to help you find the best mortgage deals and interest rates. For more advice, read our guide Getting ready to apply for a mortgage.

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