Some first-time buyers overlook this stage as they don’t understand the importance of their credit rating and what it means to their lender. But it’s also important to remember it will also be hugely important whether you’re looking to remortgage your existing property or buy your next home.
In short, a poor credit rating will mean you’re likely to be rejected for your mortgage application. The worst time to find this out is after you’ve put in an offer for your dream property which may mean there isn’t enough time to sort out the issues before the owners find a new property. Or if you’re relying on a remortgage to cover debts or upcoming purchases. So get started early and be proactive on your credit file.
So what is a credit rating and why does is matter?
Your credit rating is a number given to you by a credit reporting agency that lets financial lenders know whether they should give you credit or not. This can cover not only your mortgage, but also extends to loans, mobile phone contracts, hire purchases etc.
As far as the bank or lenders point of view, giving anyone money has a risk associated to it. They cannot guarantee that you’ll be able to pay them back all their money plus the interest, therefore your credit rating lets them know how much of a ‘risk’ lending to you is. This is based on your historical record of having managed credit. Generally, if you have a higher credit score, you’ll find it easier to get a larger variety of lending/credit products or lower interest rates.
Here’s a few tips to help manage your credit rating:
- Keep up to date with your file
You should be checking your report as regularly as possible. It’s updated every month and it’s important to make sure it contains all the right information. If any of the information is wrong, contact the relevant bank/institution to have it updated. Some credit report agencies offer monthly alerts if you subscribe to their monthly packages – helpful if you’re actively applying for credit. - Fix your credit rating
If you’ve currently got a bad credit rating, then you can use a prepaid credit card. You don’t need a credit check for these as you don’t actually borrow. You top up the card and pay a small monthly fee for a fixed period of time which are then recorded on your credit file. - Make payments on time
Any late or missed payments will be marked on your file. These say to lenders that you may not repay any future lending that you’re given. Setting up a direct debit is the best way to avoid this. Some credit lenders will update your credit report if you can in contact with them and explain if the missed/late payment was out-with your control. Keep in contact with your lenders if you foresee any issues pending with payments. - Close any unused accounts
Particularly if you have credit accounts that aren’t being used, it’s sensible to close these down. Lenders can take into account the credit you have access to as well as the credit you’re actually using. So if you have a large overdraft or credit card option that you never use, best just to close this down. - Reduce and pay off debts
Although not always simple, if you can prioritise reducing and paying off any debts you have, this will have a massive impact for lenders. It shows that you’re a responsible person to lend to. If you only ever pay off the minimum balances, it doesn’t look good to lenders. They want to see that you can manage your debts. - Build your history
If you find you can’t get lending easily because you have little or no credit history then it’s worth considering options to start building your history with responsible actions. Using a credit card responsibly could help, but you have to ensure you make few purchases and repay the balance in full every month. This can help lenders see that you can manage your money. But just to drive the word ‘responsible’ home again. If you misuse the credit card then you’ll be in a worse situation than before. - Don’t make lots of credit applications within 6 months
Every application, successful or not(!), will be recorded on your credit file that is visible to financial lenders. If you have done multiple applications within a short period of time this will significantly reduce your likeliness to be accepted for credit. This is particularly so when it comes to property purchases. Most applications leave a footprint for 6 months. - Register on the electoral roll
It’s an important part of ensuring you’re a ‘registered’ person and that you live where you say you do. In some cases a critical lending element for mortgage/credit companies. It’s simple to do and some argue it’ll make one of the biggest impacts on your credit report. - Don’t change your address too regularly
Credit lenders like to see that you’ve stayed at the same property for a reasonable period of time. If you move regularly for work or have done so due to personal circumstances it can impact how they view their security, but it’s sometimes impossible to control. Also regularly changing employment and bank accounts can have a negative effect as well. Loyalty is important to lenders. - See who you’re ‘linked’ to
If you’ve had any shared credit with anyone in the past, this may be reflected in your file. If they have a poor credit rating, this can impact yours. You may not be able to avoid the connection if you’re married or recently separated from the person, for example. But if the financial product that connected you is no longer linked to you both, then it is important that you inform the credit reference agency of the current situation.
If you’re needing to sell your home quickly, then get in touch to find out how we can help you regardless of what situation you’re in.
Or call us on: 07441 39 39 09
Read more about our service for selling your home quickly.
