What is a credit score ?
Credit Scores are normally used by lenders to help them decide if you qualify for certain loans, including mortgages and credit cards.
Credit scores are calculated by a lenders automated application system. The vast majority of mortgage providers use credit scores when assessing mortgage applications.
Credit scores are generally used to decide whether you qualify for certain loans, or credit cards. If you’ve got a high credit score, you’re likely to be considered a good risk. Indeed, it might seem like having a high score sometimes makes it easier to get a mortgage.
Credit reports hold information about your personal credit history and transactions over the last six years. Normally, your history includes details of any mortgage payments, credit card balances, overdraft limits, loan payments, mobile phone contracts and even some utilities. Quite frankly, if you’ve ever taken out credit, a credit reference agency will hold a report about you.
How to check your rating
There are currently two main credit reference agencies. These two main agencies are used by lenders in most circumstances. They are Experian and Equifax. You can register to see your credit file. A mortgage adviser can give you details of how you might access your credit file data.
Credit agencies regularly collect and update your personal data. The data they collect includes where you live and whether you’re named on the electoral register. Also, your credit file has details of any problems, such as Defaults, County Court Judgements or late payments. Every time you apply for credit a trace or “footprint” is left on your credit file. It’s important to make sure these footprints are only left behind for things that are relevant. Too many footprints can be a concern to some mortgage providers.
Credit agencies simply collect information about you, they don’t make decisions about whether you’re accepted or rejected for credit.
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Types of information in your report
Credit reports usually have a number of categories, these categories include things like:
Address information – electoral roll information about your current address, and previous addresses
Financial credit agreements – details of any loans, credit cards, mortgages or overdrafts
Public records – information about any Defaults, County Court Judgements (CCJs), Bankruptcies or Insolvencies
Financial associates – any financial relationships with someone else. For example: Joint account holders
How your credit score is calculated
Lenders calculate credit scores in different ways. When you’re applying for a mortgage lenders usually consider two main areas:
Your Application Information
A mortgage application contains important personal information. Your application will include details about you that are not available in your credit report. For example: your income, your job, any dependants and how much deposit you have.
Previous Credit History
Lenders will use the historic information contained in your credit report. Both good or bad information is available in your report and will be looked at when applying for a mortgage.
What happens if your application is declined ?
Being declined for a mortgage isn’t nice. However, it’s not necessarily the end of the world. Mortgage providers use different criteria; they score mortgage applications in different ways. Therefore, should one lender decline your application, another could score you higher, and as a consequence be happy to give you a mortgage.
In some cases, we even get lenders to re-consider and over-turn decisions. But, this will depend on your circumstances.
How to improve your score
You can’t improve a credit score overnight. However, there are ways to improve your score:
Consider asking a mortgage broker to take a look at your credit file. A broker might be able to tell you where improvements can be made. Also, a broker should be able to point out potential problems. It can take a few months to see an improvement in your credit score. Therefore, it’s a good idea to start planning as soon as possible. Here’s some simple tips for you to consider:
- Make sure you’re on the electoral roll
- Make sure your names and any address details are correct and match up
- Don’t run up lots of applications for credit before applying
- Try to close your unused accounts, such as zero balance credit cards
- Check your associations, are they going to be a problem? (i.e. ex-partner)
- Don’t fall in arrears and try not to be late with your payments