Property News

"I'll huff and I'll puff and I'll blow your house down..."

If you know the story of the three little pigs, you'll remember how thorough preparation and hard work pay off and save the house of the last of the trio. Now, how does this relate to mortgages and credit scores?

If you're getting a mortgage, you'll already know the importance of your credit score. Forget how much deposit you've saved, forget about tracking sold property prices and forget house hunting: if you "fail" a lender's credit check, you won't get a mortgage from them. Sometimes this doesn't matter because you can find another lender who uses a different credit reference agency or who's satisfied with a lower score, but, most of the time, it matters very much. Usually, if your credit score is "excellent" with one credit reference agency, it will be "excellent" at the other two major UK agencies. What you need to take away from this is that you can't run away from a bad credit rating. Instead, you must tackle and improve it. However, it's easier to do this if you know what's likely to push your score down.

1. Age

The younger you are, the less credit history you have. Once you're 18, you can begin taking out credit in your own name. This can sound worrying or intimidating to a young person, but building a credit record is essential for anyone hoping to buy property with the help of a mortgage. Of course, taking out credit doesn't have to mean credit cards. A mobile phone contract also counts, even a SIM-only deal. What's more, the simplest way of getting someone off on the right foot is to register on the electoral roll - and to keep that information updated. Remember that many lenders, including mortgage lenders, prefer credit applicants to have lived at the same address for as long as possible. Frequent moves may suggest instability - including financial instability - which is an impression you want to avoid giving.

2. Missed or late payments on your credit file

Sometimes a missed or late payment is an accident. The best way of ensuring that this never happens is to use direct debits to schedule all regular payments. Of course, even this isn't fool-proof - for instance, if there isn't enough money in the account - but it's better than relying on your memory.

Sometimes a missed or late payment is down to insufficient funds. This might be because your income isn't high enough or you might need to readdress your financial priorities.

Whatever the reason for the missed or late payment, the record of it will stay on your credit file for six years. Fortunately, its effect on your credit rating reduces as time passes. This is because most lenders are most interested in your recent financial history. Consequently, you can best help yourself by ensuring that you neither miss any more payments nor make any more late ones.

3. Carrying a high balance on at least one credit card

It's sad but true that just because a lender offers you X amount of credit, it does not mean you should either take it or use it to capacity. In general, whether it's a credit card or an overdraft, lenders like to see that what is borrowed is repaid in full each month. Making lower repayments usually means accruing interest on the original loan. It also means that you'll need to pay close attention to your credit utilisation. This means how much of your credit card limit you are using. While there's no hard and fast rule, it's sensible to aim to utilise no more than 25 per cent of the borrowing limit available to you on any one particular credit card.

4. Recent credit application

Sometimes applying for new credit is unavoidable - for instance, if you need a mortgage to buy a home! However, it should always give you pause for thought, particularly if you hope to apply for a mortgage in the near future. In general, a new credit application has a relatively short-lived effect on your credit score (particularly if the application was accepted), but it's best to try and avoid making applications in the six months or so prior to applying for a mortgage.

5. Identity theft victim

Identity theft in its various guises is more common than any of us would like. Protect yourself by:

- Keeping pins and passwords secure

- Shredding personal documents

- Ensuring phones and other devices have anti-virus and malware protection

- Checking bank and credit card statements

- Checking your credit file at least every six months

6. Your credit file links you to someone else

This might be an ex-spouse or partner, a sibling, adult child or flatmate. Equally, it could be someone with whom you have no personal connection who used to live at the same address. Although checking your credit record may be the only way to know if there's a problem, it's better to ensure there's never an issue in the first place. For example, if you flat-share, be cautious about having shared utility bills, as one tardy payer can then affect your credit rating.

7. There is a default judgment against you

This is rare and can usually be avoided if you take care to:

- Pay bills in full and on time

- Ensure lenders and financial institutions have your correct current address

- Check your credit record regularly.

It might be a truism, but knowledge really is power - and knowing how to build and maintain a strong credit record can only help you when it comes to the housing market. No, it won't save your deposit for you or bring sold property prices down to the level you'd ideally like to pay, but it will ensure that when you have that deposit and are earning sufficient to qualify for the mortgage you need, your credit rating will not be the wolf that blows your house down before you've even bought it.

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