This information is for anyone who will need a mortgage or re-mortgage to buy a property.
Step 1: Get on a roll
The electoral roll is one of the key sources of information for credit agencies and lenders – and vital to verifying your identity. If you are not on it, it can be very difficult to get any credit at all. And it’s vitally important that your address on the roll is accurate and up-to-date.
To find out how to register, go to the About My Vote website. To check if your details are correct on the electoral roll, contact your local council.
Step 2: Know your credit every time you apply
– and space out your applications
Before you apply for any form of credit, make sure that you know whether there is anything in your credit rating that might cause you to be rejected. Checking your rating with agencies like Equifax or Experian costs £2 or less – and it can have a big impact on your future ability to take out loans or mortgages. When you apply for a financial product, the lender will ask permission to check your credit file – and if they reject you, the search that they conducted could be a factor in any future lending decisions.
Make sure all the information on your file is up to date and accurate. If it isn’t, request that the agency correct it. If you have missed any credit or loan repayments, you can request that a “notice of correction” be attached to your file to explain why – and give important perspective to future lenders.
A lot of credit applications in a short space of time could be interpreted as evidence that you are struggling to keep up with your obligations, so even if you are shopping around for options, try to space out your applications for credit. Some companies will agree to do a “soft search” or quotation-only search, which doesn’t appear on your credit file, and this can be useful for protecting your rating. Make sure you know what type of search they will be conducting – and avoid unnecessary full searches if you can.
My personal experience is that many clients have information sitting on their credit files about which they are totally unaware, and often it is wrong or damaging for one reason or another.
Lenders need a fair and efficient means of assessing the level of risk that mortgage applicants represent. A potential mortgage client's reliability when it comes to paying bills and using financial products is one of the best indicators available. This means that lenders check your credit files at Experian and/or Equifax, but if that information is wrong, or there is information there which could down-grade your status, you really do need to know about it and get it changed. This is essential before making any mortgage application.
Step 3: Play your cards right (and don’t hold too many of them)
If you have credit cards (including store cards) that you don’t use, the lines of credit will still be shown on your file – and some lenders may worry that you have too much potential credit available to you. It makes sense to cancel any cards you no longer use, and check your credit file to make sure the changes have been logged.
Don’t do this if it will mean overloading your remaining cards though, as lenders also look at the percentage of your available credit that you use. If you have older cards, it’s also important to check that the address registered on them is up-to-date. Having different addresses on your credit file can be a risk factor for lenders.
Step 4: Build up your reputation
To judge your reliability when it comes to loans, a mortgage provider needs to look at how you have used credit in the past. Make sure that you have a history of managing credit responsibly by staying within overdraft limits, and making certain that you never miss a payment on credit cards, loans and utility bills.
Use direct debits to help you pay on time, although you will still need to ensure that there is enough money in your account. Remember that making agreed payments and avoiding any missed bills will have a more positive impact on your credit history than paying some debts off in their entirety but missing other payments.
Avoiding credit altogether won’t give you a positive credit rating, since it means loan providers don’t have access to information about your reliability. However, don’t try to remedy this by applying for lots of different products at once, as many different searches can have a negative impact on your credit rating.
If you are considering applying for a mortgage with a lender, then it can help to build up a relationship with them beforehand. Having a current account can help to give them a first-hand view of your cash flow and your reliability, as can making regular payments to a savings account to build up a deposit for your home.
Step 5: Stick to fixed-line
Mobile phone numbers are great for ensuring that you are always contactable – but they do not give the same sense of stability and reliability as a landline number where credit applications are concerned, and can cause concerns over potential fraud. When you apply for any credit, make sure to use your landline number if you have one.
Step 6: Never Never Never use Pay-Day Loans
Lenders view someone who has recently used a pay-day loan as unable to manage their finances. Pay Day Loans are toxic to your credit rating and lenders will probably reject your application outright if you have used one recently. If you have used one recently, do make sure that you cease using them as soon as possible. You will need to demonstrate that you have not used a payday loan for up to 6 months before applying for mortgage finance. The rule is never use a payday loan before applying for a mortgage.