Your credit score is a 3-digit number that indicates how good you are at borrowing and repaying money; the score ranges from 'very poor' to 'excellent'. You will likely have a good credit score if you consistently pay your bills on time. However, if you have a history of missed or late payments, this could have a negative impact on your credit score. If you have no history of borrowing money, it is difficult for lenders to assess the risk, which can also reflect in your credit score.
Credit scores play a significant role in obtaining a mortgage. Mortgage advisors highlight the importance of maintaining a good credit score to secure a mortgage with favourable terms. In the case of bad credit mortgage seekers, the challenge becomes even more daunting. Such applicants often face stringent lending criteria and higher interest rates due to their credit history. To avoid disappointment and financial difficulties, it's essential to work on improving credit scores before applying for a mortgage. Mortgage brokers can offer guidance and help borrowers navigate the complex mortgage application process while also providing advice on credit repair strategies.
Here are 10 tips to improve your credit score before making your mortgage application.
Check your credit score. The best way to improve your score is first to understand it. Experian, Equifax and Transunion are the 3 credit referencing agencies where you can request to see your credit score. Checking your credit score through these agencies will not penalise your score, as only you and the agencies will know when you have reviewed them. The checks are free and can be done quickly and easily online. Make a habit of checking your credit, especially before making any credit applications.
Check information is up to date and correct. Most importantly, check that all of the information is correct. That includes checking that everything is up to date, all accounts and credit cards are listed, and any default payments. If you see incorrect information, you must contact the credit referencing agency, which will work to correct this. Working through any missing accounts or details may take some time, but all the information must be correct and current. Any missing or wrong information could impact your mortgage application
Check your financial links. It's crucial to remove all financial connections with individuals with whom you no longer share accounts. Maintaining financial ties with an ex-partner or flatmate, for instance, can have an adverse impact on your credit score, as their creditworthiness can potentially influence yours. As a solution, a mortgage broker might recommend closing all joint accounts and credit cards shared with others to avoid any unintended consequences that could negatively impact your mortgage application.
Set up a direct debit. Missing payments will negatively impact your credit score. To avoid missing payments, mortgage advisors would suggest setting up direct debit payments for your bills. This ensures that payments are automatically paid from your account on time.
Reduce your credit use. If you're requesting a mortgage, working with a mortgage advisor is advisable to understand how your credit score and financial behaviour can affect your eligibility. A high amount of unsecured credit, such as credit cards or overdrafts, can negatively impact your credit score and make you a less attractive candidate for a mortgage. To improve your chances of securing a mortgage, it's recommended that you reduce your use of unsecured credit to below 50% of the amount available as soon as possible. This shows that you are managing your finances responsibly and are not living beyond your means.
Close unused accounts It's worth checking to see if you have any unused accounts; closing these can help improve your credit score. If you have multiple credit cards, consolidating the debt onto one card would be better. There are interest-free Closing any unused bank accounts can help improve your credit score. Consider consolidating the debt into just one if you have multiple credit cards. Take a look at interest-free balance transfer credit cards, which allow you to move debt from cards that charge interest onto ones that don't (but beware of costly transfer fees).
strong>Register to vote Credit reference agency Experian recently stated that being registered to vote is a positive sign as it allows lenders to confirm your identity easily, such as your name and address, and is also a sign of stability. This simple act could add 50 points to your total credit score, which could be the difference between a good and an excellent credit score. Registering to vote is quick and easy and can be done online, and if you are unsure if you are on the electoral roll, you can contact your local registration office, which will be able to let you know.
Free credit score coaching For those seeking a mortgage or bad credit mortgage, using the Clearscore app and its free credit score coaching feature can be highly beneficial. The app provides a list of tasks that can be completed in a matter of days, but the effects of these actions may take several months to be noticeable. By following the app's recommendations, borrowers can improve their credit score and their chances of obtaining a favourable mortgage deal, even with a less-than-perfect credit history.
Prove you can manage debt. If you have never borrowed money and have no credit history, your credit score may be low as you have not proven that you can manage debt. If this is your position, a mortgage broker could advise that it would be a good idea to apply for a credit card and repay the balance in full and on time every month. It won't happen immediately, but your credit score will improve over a few months. Along with this, you may find that banks will offer to extend your credit limit. However, be cautious as some credit cards charge high-interest rates, though you won't have to pay interest if you repay the card in full. Remember, only borrow what you can afford to repay. A mortgage advisor can offer advice on managing your debt and improving your credit score, ultimately increasing your chances of being approved for a mortgage.
Be careful with your credit. Whenever you request credit, be it a credit card, a mobile phone contract, or even if you opt for monthly payments for your car insurance, the lender will run a credit check on you. This process involves a hard search that gets logged onto your credit report. Multiple hard searches conducted in a brief period can portray you as credit-hungry, which could potentially harm your credit rating. A mortgage advisor would advise you to abstain from applying for any credit at least six months before submitting your mortgage application.
