If you’ve recently run a credit check on yourself online and you had a good score, you may think you’re in with a good chance of getting a mortgage. But credit scores are not as straightforward as you may think.
Many people are aware that having a good credit rating will increase your 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 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).
However, it’s important to understand that these scores are not set in stone and not usually taken into account by lenders. ‘A credit score is broadly irrelevant,’ says MBA’s Senior Mortgage Adviser Phil Leivesley. ‘The credit referencing agencies will measure someone’s credit worthiness 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 Experian 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 their 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 MBA’s Managing Director Monica Bradley.
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 carry out their own checks in any case, the best thing you can do is make sure you have all of 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 (paper copies or PDF files are fine). Make sure you have your current passport and driving licence with your up to date address on so that your identify can be verified. The more organised you are, the easier it will be for your broker or lender to progress your application. You will also need a copy of your P60 form from the past two years and proof of address on a recent utility bill.
Take care with your banking
Finally, make sure you manage your bank account very 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. Some lenders may have concerns about payments for gambling websites and may query unexplained cash deposits or payments. Evidence of a pay day loan may also be viewed with concern, so try to manage your money and cash-flow as smoothly as possible.
In essence, while your credit score itself isn’t the most important thing, the information found in the credit report carried out by lenders is what matters, so taking control of your finances and knowing what your credit history is looking like is vitally important.