Understanding your energy usage
If you have a less-than-perfect credit rating, this can have a big impact on your chance of getting accepted for a mortgage.
Your credit score is an indicator of your financial health. It shows lenders whether or not you have a good track record of making repayments on your debts and utility bills.
That said, there is no exact credit score you need, as each lender has different requirements that have to be met.
Here we take a closer look.
Whether or not you get offered a mortgage will depend on several factors – including your credit rating.
This includes your job, your age, your income and expenditure. Lenders will also look at your lifestyle – by scouring your latest bank statements.
Banks and building societies will use this information to carry out an affordability assessment to see if they are happy lending to you. They will want to be sure you are more than capable of sustaining your monthly repayments on the money you’re asking to borrow – even if interest rates suddenly increased and costs went up.
While there is no set credit score to ensure you get a mortgage, the higher your rating, the better your chance of passing the affordability checks and getting approved.
At the same time, a higher rating will improve your likelihood of getting access to the best mortgage rates.
When you apply for a home loan, lenders will carry out a credit check. They will want to see proof of you having a good history of repaying debts.
With this in mind, it’s worth taking a look at your credit report yourself before making a mortgage application. You can check your score and report for free with our Credit Monitor tool.
This is an important step to take, as you could find there are errors on your file which could affect your ability to get accepted for credit. If this is the case, you should get these corrected.
You need to ensure everything is accurate and up-to-date.
During the pandemic, many people have seen their credit ratings take a hit due to cuts in income, redundancies, and unexpected changes to their circumstances.
If you’ve got ‘blemishes’ on your report, such as late or missed payments, defaults or county court judgements, these can all lower your score.
Marks on your record can set the alarm bells ringing for lenders who may view you as a far more risky proposition than a borrower with a strong credit history.
If you’ve struggled financially due to Covid-19, you can add what is known as a ‘notice of correction’ to your credit file to explain why you missed a payment. Lenders must take this information into account when assessing your application.
Lenders will look at your whole credit history and may offer you a home loan even if your record isn’t whiter-than-white – though you may have to pay a higher rate.
A lower score will also mean you have a reduced selection of lenders to choose from. As a result, you may not have access to some of the cheaper deals, meaning it may be more expensive when you do borrow.
If your credit rating is rock bottom, you may still be considered for a mortgage, but only by a specialist lender.
Note that this is likely to come at a price in terms of the rate you end up having to pay.
Marks on your credit record will remain there for six years, so you might want to think about pausing on your mortgage application for a little while.
The impact that blemishes will have on your score will diminish as time goes by, as lenders will be most focused on your recent credit history.
In the meantime, you can work at building your credit rating by ensuring you make all payments on time. This includes both credit cards and utility bills. By being disciplined, you should see your score steadily improve.
Keeping up with payments is just one of a number of steps you can take to boost your score.
Other simple tips include getting registered on the electoral roll, closing down credit cards you’re no longer using, and reducing debts. Read more here.
Once you’ve improved your rating, you stand a better chance of getting accepted for a mortgage – and also for the best mortgage deals.
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