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How your credit score affects you

Your home may be repossessed if you do not keep up repayments on your mortgage

One of the most important steps in securing your mortgage

Your credit score is a very important piece of information when you’re applying for a mortgage. Put simply, a higher number for your credit score could increase your likelihood of being accepted for a mortgage and means you get a better interest rate on your mortgage. It helps companies to assess your reputation for repaying debts on time. A higher number for your score indicates that you have a better credit rating.

The UK’s Credit Reference Agencies (CRAs)

In the UK there are three main Credit Reference Agencies – Callcredit, Equifax and Experian, who hold data on your financial behaviour and score your financial health based on this information. Each mortgage provider will carry out their own additional checks, using your rating with one of the ‘main three’ as part of their process. Each lender makes decisions differently. What this can mean is that, even if one lender rejects you, it doesn’t automatically follow that others will do the same. Clydesdale Bank will always write to customers who are rejected for a mortgage with us.

However, making a number of applications in a short space of time can affect your ability to obtain credit. Each time you apply for credit the company you approach will do a check on you. If you have a lot of checks on your file it can look like you’re desperate for credit.

How will a lender decide whether to lend or not?

There are a huge number of things that companies can look at to compile credit scores. Some factors that many use include:

  • occupation
  • employment history
  • annual income
  • your total debt
  • types of accounts you hold
  • number of late payments
  • age of accounts

In general, when you apply for a mortgage, what a company will know about you will be built up using:

  • the information you put on the application form you send them
  • any past dealings you’ve had with them
  • Equifax, Experian and Callcredit credit reference agency scores.

Clearing up the myths

The totallymoney.com website has a great article that shows you what is included by the CRAs when they compile your rating and it also shows many of the things that people mistakenly think are included. Make it easier to understand how they score you by reading the Totally Money article on credit scoring (opens in a new window) [1]. Knowing more can only help you improve your score and your chance of being approved for a mortgage and getting the best rate you can.

Be in control of your score

The credit score that companies have for you is a very powerful piece of information. Lenders rely on it when working out whether to give you a mortgage and what terms to offer you. So it can pay dividends to look at your score and make sure that all the information the CRAs have on you is accurate. You can see what your credit score is by visiting Experian (opens in a new window), Equifax (opens in a new window) or Callcredit (opens in a new window).

They also offer advice about what to do if you see an error in your score or if you have a poor credit rating score.

Improving your score

There are a number of things you can do to try and improve your score. The following tips can help you to make sure your score is as high as it can be.

  • Check your score before you apply for a loan
  • Make sure you’re registered to vote
  • Putting your landline number on the application could help [2]
  • Always pay on time
  • Cancel unused credit cards and store cards
  • Make sure your name and address details are correct

Common sense for lenders

Lenders are trying to make sure they lend responsibly and also that they’re likely to get their money back over the lifetime of the mortgage. It’s fairly intuitive.

Before you apply for a mortgage read as much as you can about what your credit score is and how you can improve it. It’s an important part of how much your mortgage might cost you.

Sources:
  1. Totally Money, May 2015 (opens in a new window)
  2. Money Saving Expert, May 2015 (opens in a new window)

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