Tip #1: Download your credit score before making an application for a mortgage
Many consumers assume that, since they have had credit in the past without issue, their credit report is clean, with no pitfalls or nasty surprises. But here’s why you shouldn’t miss out the crucial step of downloading your credit score before applying for a mortgage.
During the mortgage application, lenders examine credit scores and reports much more closely than when you apply for other types of finance. In fact, other lenders obtain different levels of information from the credit bureaus, and might simply ignore many of the things that mortgage lenders are more likely to pay attention to.
For instance, some credit checks are electronic, taking into account basic factors like the percentage of debt used, the number of missed or late payments, the overall number of credit accounts and so on, and assign them points. Obtaining a certain number of points is a pass – below would be a fail or refer.
Avoid the Issues
Whilst you might pass these electronic checks, once an underwriter receives your mortgage application they will typically take your full credit report and run through it manually – this is often where issues can occur.
Flagged issues can include: Finding that some accounts are registered to different addresses; that there are accounts showing as unpaid or open when they should have been closed; or that there are notices of correction still active on the account.
It can be incredibly frustrating when a customer is a few weeks into the purchase of a property only to find there’s an issue with credit. Depending on the severity of the issue, resolving it could take anywhere from one to six months or, in extreme cases, many years.
You can see why, then, that viewing your credit report is one of the first things you should do when you’re on the path to obtaining a mortgage. If there are issues, they will be spotted and addressed earlier and they will be less likely to hold up your purchase or remortgage.
Why It Helps
It can also be extremely useful to check your credit score if there is some historic adverse credit that can’t be removed; a broker can more easily choose lenders that will consider these from day one.
Quite often, lenders have specific thresholds for adverse credit, and when this might be acceptable. These can include circumstances such as one default payment under £300 if it’s over 12 months old. Knowing these specifics going into a mortgage application can ensure that your broker will be able to pick the right lender the first time and avoid you either losing a property, or having to pay a higher rate on a remortgage.
More often than not, errors from energy providers, lenders and mobile phone accounts can appear to be serious – but if the provider admits it was their error they can have these adverse entries removed, and your report will instantly return to normal. However, negotiating with these companies for a resolution can take some significant time and effort.
Checking Your Credit Score
There are three main credit reference agencies currently operating in the UK – Callcredit, Experian and Equifax – and two ways in which you can obtain a credit report. One way would be to pay £2 to cover admin fees, and obtain a statutory credit report from one of the providers listed above. They are legally obligated to provide this as many times as you may require, however they don’t make it a slick process.
As an alternative, they offer to make it easier, provided that you subscribe to a monthly plan. These usually come with a 30-day free trial. If you are aware that you already have some adverse credit and you want to monitor your credit report over time, these can be beneficial. However, as a one-off, many find that the trial is enough so long as you remember to cancel your subscription once you have obtained the report.
Finally, ensure you download the full PDF report detailing every account, its payment history and any other factors that are listed in your online report; the credit score alone is meaningless, an arbitrary figure allocated by the reference agency. During the mortgage application process, each lender, when checking your credit history, will assign their own score against your credit report, so these details are what’s most important.
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We hope you’ve found the first in our new series of Mortgage Tips blog posts useful and that it has inspired you to check your credit score well before you launch into a full mortgage application. If you’ve checked your score and are ready to forge ahead, why not contact us today about finding the right lender?