If you’ve recently run a credit check on yourself online and have a good score, you may think you’re in a good position to get a mortgage. But credit scores are not so straightforward.
Many people are aware that having a good credit rating will increase their chances of getting a mortgage and even getting the best deal on a mortgage. However, there is some confusion around credit scores and what they actually mean. Many people who are thinking of applying for a mortgage will usually go onto the website of a credit referencing agency like Check My File, Experian or Equifax beforehand, input their personal details and get a free credit score (Experian rates you up to 999 and Equifax up to 700).
Lenders’ own credit checks
However, it’s essential to understand that these scores are not set in stone and are not usually taken into account by lenders. ‘A credit score is broadly irrelevant,’ says our Managing Director, Monica Bradley. The credit referencing agencies will measure someone’s creditworthiness based on their own scorecard. Lenders don’t see the score provided by the credit referencing information. Instead, they see the information contained within the credit report and then generate their own score from there. I’ve had people send me a copy of their credit score showing their score to be excellent, only to find out they’ve had a default on a payment within the last three years.’
Make loan payments on time
The key thing is to make sure you have met loan payments on time and ensure you haven’t missed any payments. While you can check your credit score to get a rough idea of where you stand, it’s only a guide, and a bank will carry out its own credit search once you apply for a mortgage. ‘A credit search will show the bank exactly what the client owes and their payment history so that they can see how the applicant has conducted their credit cards, personal loans and previous mortgages,’ says Monica.
Your credit score can change
It’s also important to be aware that your credit score can change. ‘Bear in mind you might have a good credit score that goes up every month because you have made loan payments on time, but you might have arrears on a card from one or two years ago,’ says Monica. ‘Also, if you have paid off a credit card in full at the end of the month, the system will still show a balance as they take about six weeks to update.’
Get your paperwork organised
So, if your credit score can change, and a lender will conduct their own checks in any case, the best thing you can do is ensure you have all the relevant paperwork needed for applying for a mortgage. Pull together your payslips as evidence of your income for the last three months, make sure you have up-to-date information on all loans and credit commitments, however small, and have three months’ worth of bank statements to hand.
Make sure you have your current passport and driving licence with your up-to-date address on so that your identity can be verified. The more organised you are, the easier it will be for your broker to progress your application. You will also need a copy of your P60 from the past two years and proof of address, such as a recent utility bill.
Take care with your banking
Manage your bank account carefully in the three months leading up to your mortgage application, as some lenders will go through your statements and check for anything that looks like unpredictable behaviour. Avoid spending large sums, try not to go overdrawn and make sure you meet all loan repayments on time. Payments to gambling websites can be a concern for lenders. They may also query unexplained cash deposits or payments. A payday loan may also be viewed with concern.
While your credit score isn’t the most important thing, the information found in the credit report carried out by lenders is what matters.