Your credit score
The first thing to understand is that your credit score is just that, a score, nothing more than a number; it’s not the full picture. Though clearly, a low score isn’t as good as a high score and each credit rating agencies that you can approach directly for a copy of your score will provide you with their own score and each credit rating agencies has a different viewpoint on what is good and bad for your score. Additionally, every single lender also has its own internal credit score for you and some lenders will be relaxed about certain points that affect your score, whereas other lenders would outright decline and not consider your application.
Your mortgage broker at this point will be invaluable as firstly they will ask for a copy of your credit file to get a basic outline of your situation and then once they understand your full circumstance will be able to place you with the lender that would most likely accept your application. YourRemortgage mortgage broker’s own knowledge and experience of many years will often prove invaluable at this point but equally, your mortgage broker will be well connected with the different lenders. This means they can speak directly with their Relationship Managers and Underwriters at the different banks so they can actually talk through your application individually and avoid a “computer says no” decision but actually get the lender to consider your application.
CHECKMYFILE CREDIT SCORE
Your Credit Score is a measure of the probability of you defaulting on a credit agreement. Scores range between 0 (high probability) and 1000 (low). An average score, based on the checkmyfile scorecard, is 750. Credit Ratings range from 1 star (poor) to 5 stars (excellent). The average Credit Rating is 3 star.
There is no single Credit Score, most lenders and organisations accessing your Credit Report will utilise their own credit scorecard when making lending decisions and not those of the Credit Reference Agencies themselves. The organisation checking your Credit Report may check one or more of the Credit Reference Agencies and will be able to see varying amounts of data depending on what type of organisation they are – if you are credit active you will see in your search history that it is often the case that multiple agencies are checked.
There are also 3 main different credit rating agencies and different lenders use different credit rating agencies so again your mortgage broker will know which lenders use which so if one of the credit rating agencies had a particularly low score on you for no apparent reason they could potentially approach a different lender who uses a different agency. A very technically point but not to worry your mortgage broker will be able to help you with this.
The 3 main credit reference agencies are
✅ Showing that you can pay your bills on time and are responsible for any debts to date is a big tick for the lenders as they like to know you will actually make those monthly payments on time each month. There are several things you can do to improve your credit score.
✅ Firstly paying your bills on time is the best start and if you’ve ever had any problems in the past don’t worry your mortgage broker will be able to help you navigate the different options available to you and will often have the contacts at the different banks directly to call them up and talk them through your situation if needed.
Let’s look at other areas that can help improve your credit score.
✅ Keeping your debt utilisation threshold low helps- what is that you’re thinking? Simply put it’s the amount of debt you have outstanding versus your credit card limits. So as an example a £500 credit card debt vs a £1,000 credit card limit would mean your debt utilisation is at 50%.
✅ Typically you want to keep this to around 20-30% to firstly avoid it reducing your score, the debt not being so large that it starts to affect your mortgage affordability and this calculation is applicable across all your card limits. Do be careful if 1 card is on or near the limit even if you have other cards with zero balance on as this card could look like there is a problem. The same applies if you pay these cards off in full each month. Though you’d think it looks good that you can meet the full balance bill each month, unfortunately, the algorithms that sit behind this don’t really work like that and will assume your running balance is near or maybe even about to breach its limit.
✅ Any balances showing on your credit file can be taken into consideration. So if you’re looking to apply for a mortgage shortly ensure you clear your credit cards a good 2+ months ahead of any application being submitted as it can take this long for the credit files to update and some lenders, unfortunately, can take a stance (even when you can show them that you’ve repaid it) that if it’s showing on the credit file, they’re going to still a factor that in. Your mortgage broker will help with this if this is the case and ensure the lender you progress with is appropriate for you depending on your situation.
✅ If you’ve never had any credit cards or loans before this can (as odd as it sounds) work against you as the credit rating agencies and in turn, lenders have nothing to go off, as you’ve got no credit history at this point. This can be a concern as some lenders (through their internal credit scoring algorithm when you apply) actually could even decline you. This is something your mortgage broker will have a lot of experience with so will be able to avoid it and you can also do some basic things to help improve your credit score now.
✅ A way to help improve your credit score if it is low is applying for a credit card that you’re highly likely to be approved for (many credit card providers let you do a soft search apply to see if you’re likely to be accepted to avoid any negative marks on your credit file) and then to use this card to show you’re responsible with a credit facility.
✅ Now we’re not suggesting borrowing money to prove you’re good with money, as that would incur interest and not be advisable, but rather use the credit scoring system to your advantage. An example of this would be to apply for a credit card, be accepted, set up the direct debit to pay the full balance when it’s due so you never pay any interest, and then use it once a month for a small purchase.
✅ So 1 week of grocery shopping as an example, when you get home you put the card back in a draw and wait until that bill falls due and is then paid automatically by direct debit. That way it’s treated like a delayed debit card essentially as you were only buying something you could have paid for with a debit card but now on a credit card, it will show (provided you pay it on time so remember to set up your direct debit for the full balance) as a successful payment made and a nice green tick that month for your credit report and this repeated month after month will help to show a satisfactory repayment history on your credit file.
✅ Make sure you’re registered on the electoral roll and ensure your bank has the correct address where you currently live. If you’ve got a phone contract this being in your name also helps as do some energy providers.
Read on to find out how you can use your savings to reduce your monthly payments and term of your mortgage with the “Offset Mortgage”