Buying a house is always an exciting - and nerve-wracking - time. However, in addition to settling on an area, picking paint colours and planning your housewarming party, you may also need to save for a deposit and apply for a mortgage. While saving for a deposit can be frustrating, especially if sold property prices in your chosen area keep inching upwards, applying for a mortgage is also not without its pitfalls.
Fundamentally, any prospective mortgage lender requires reassurance that you and any co-mortgagee are a sound financial bet. Unsurprisingly, this is one of those situations where your word is not enough. Instead, lenders put you and your finances through a comprehensive affordability assessment. This is designed to ensure that you will not default on your mortgage payments, risking the lender's investment and your home.
Q: What credit score do you need to be approved for a mortgage?
A: Ah, the $64,000 question. The short answer is that there is no answer. Every lender has different criteria, which means that the score you need to be approved for a mortgage will vary from lender to lender. It may even differ with the same lender if the lender's criteria alter in line with changing economic conditions. As a final complication, the three main credit reference agencies all use different scoring systems. However, despite this "non-answer", you can be reasonably confident that a lender will view you as having a good credit score if you also have a good score from one of those three credit reference agencies.
Q: All right. So what counts as a "good score" with the UK's biggest credit reference agencies?
A: Well, as we've already noted, credit scores are something of a moveable feast. However, the three main agencies regularly publish information designed to help consumers assess the implications of their own credit scores. For example, currently, Experian suggests that:
- a score of 961 - 999 is "excellent" and puts the holder in a strong position to obtain the most favourable mortgage deals with the most competitive interest rates
- a score of 881 - 960 is "good" and should ensure the holder has access to most current mortgage deals, although not necessarily the very best
- a score of 721 - 880 is "fair" and may enable its holder to choose from a "reasonable" variety of mortgage deals with "reasonable interest rates"
- a score of 561 - 720 is "poor" and may mean that the holder can only obtain mortgage deals with higher interest rates
- a score of 560 or below is "very poor" and suggests that the holder will struggle to be approved for any mortgage and, at best, will only be approved for one with very high interest rates.
As this makes clear, the better your credit score, the better your chance of accessing the best mortgage deals. This can be invaluable for a number of reasons, not least when average sold property prices make buying homes relatively unaffordable.
Q: My credit check was poor. Can I improve it?
A: The extent to which you can improve your credit score - and how quickly you can do so - depends on what is suppressing it. For example, a young adult or a recent arrival in the UK is likely to have a poor credit score due to their lack of credit history as an adult in this country. If you're in this situation, you can probably boost your score by demonstrating your ability to handle a mobile phone contract or credit card competently. Ensuring you are registered on the electoral roll is also a must. If possible, putting at least one utility bill in your name may also help.
If your poor score is due to previous bankruptcy, CCJs, or delayed or missed credit payments, you have a harder job ahead of you. However, as no-one's credit score is ever fixed, it is always possible to improve yours. You can:
- make credit payments on time
- stay within 25 - 30% of your overall credit limit
- avoid applying for new credit within 6 months of making a mortgage application
- keep checking your credit records for inaccuracies.
Q: I disagree with an entry on my credit report. What should I do?
A: Credit reference agencies should check information before adding it to an individual's credit report. They also regularly review existing data. These processes make mistakes and inaccuracies less likely but not impossible. If you spot an entry or information on your credit report that you disagree with, your first step is to contact the credit reference agency concerned. You can do this via the "Contact Us" page on the agency's website, but make sure you keep a record (e.g. a screenshot) of your communication. The credit reference agency should respond by contacting the organisation (e.g. credit card company, utility provider etc.) that is responsible for the data's inclusion and asking them to check its accuracy. While this process is ongoing, you should expect the credit reference agency to include a note next to the disputed entry highlighting that its veracity is being checked. The credit reference agency should notify you once it receives a response from the organisation concerned. This notification should include further steps (if any) that the credit reference agency can take.
The best outcome for you is obviously that the organisation agrees that the information is incorrect and authorises the credit reference agency to update the record. If they do not agree with your complaint, you have the right to add a correction notice of up to 200 words next to the disputed data on your credit report. A correction notice alerts other organisations checking your file that this information may not be correct.The credit reference agency should add the correction notice once you have drafted it and sent it to them. The agency can also help you take your complaint further, such as to the Information Commissioner.
Q: I have a personal loan. Will this affect my mortgage assessment?
A: Credit checks obviously highlight borrowing such as personal loans and overdrafts. Many people worry that this type of debt will prevent them from getting a mortgage. However, pre-existing credit does not amount to an automatic decline. Prospective lenders will look at your debt-to-income ratio to assess whether you can afford to make your proposed monthly mortgage repayments.
Nethouseprice newsletter
You can sign up to our newsletter and join Nethouseprice’s community of over 190,000 members who get regular property tips, relevant offers and news, click here http://nethouseprices.com/auth/user-register
Make a comment