How to improve your credit rating

Your credit rating may not be something you are particularly concerned with now, but you should keep it in mind if you are planning on applying for a mortgage in the not too distant future.

Here are some simple steps you can take to ensure your credit rating is appealing to prospective mortgage lenders:

  • Don’t miss payments. Missing payments on even small amounts suggests you can’t manage your money particularly well, even if you only miss one or are a little late. Setting up direct debits can help reduce the likelihood of this happening.
  • It’s a good idea to get a credit card which you use regularly. This will show a prospective lender that you are able to manage your money but only if you are able to pay it back on time. If there is any chance you won’t be able to, don’t get one!
  • Make sure you are on the electoral role. A permanent address makes you seem less of a risk.
  • Keep the same bank account. Changing who you bank with regularly isn’t looked upon favourably. The longer you have been with your bank the higher your credit score will be.
  • Pay off any debt before you start applying for more. When you finish university for example, concentrate on paying off any outstanding in your overdraft. Your student loans however won’t be counted against you when you apply for a mortgage unless you are earning enough whereby you are required to make the repayments.
  • Finally, check your credit report. Is all the information on there correct? Can you see any discrepancies? Any incorrect information could damage your credit rating and result in rejections until you make the corrections.

What is a Credit Report?

Did you know that what you do now can influence your chances of getting a mortgage for many years to come?

A credit report contains personal information like your name, current and recent addresses, D.O.B. and any existing or previous creditors.

The information which is of most interest to mortgage lenders is the record of your credit accounts, both in your name or where you are a named user. This will include any credit cards, loans, phone and utility bills. Any bills you pay as a household at university on which you are a named user will be included on your credit report.

Your credit report will have information on

  • The date when your account was opened
  • Any limits on your credit or the amount of your loan
  • The payment terms
  • Your current balance
  • Your payment history – when your payments were met and whether or not they were on time.

The information on your credit report will provide lenders with a view of how well you manage your credit. A number of factors are taken into account which might suggest that you are a risk to the lender and therefore lower your score. This can include:

  • Payment History – any late or missed payments might suggest you won’t pay your mortgage back on time.
  • Public Records – including any bankruptcies, County Court Judgements (CCJs) and debt collections.
  • The amount you owe – owing a large sum already might suggest you would struggle to meet further debts. This includes credit card balances and any existing loans.
  • Credit history – the more proof you have that you are a reliable borrower the more lenders will trust you to meet your payments.

A combination of all these factors will determine the credit rating you are assigned.

When mortgage lenders look at your report any of these factors can influence how much deposit you may need to put down or even if you can get a mortgage at all.

Anything on your report can stay there for up to six years, so anything you do now can still affect you long after your university years.

First-time buyers

When you get your first job it’s likely to come with other responsibilities; paying your rent, bills and more than likely saving for your first mortgage. However missing as little as one payment could make the difference in waiting years before lenders see you as suitable for a mortgage.

Income protection

If you lost your job could you continue to pay your monthly rent and bills? Do you have people who can support you financially if you were ill for a considerable length of time? If you do, then great. If like most people however you don’t, it might be worth giving some thought as to how you would get by. If you become seriously ill or injured and unable to work, an income protection policy can provide you with a replacement income to pay your bills, ensuring you need never miss a payment.

Many people think they can survive off benefits if they were unable to work but how far do you think you could make less than £90 a week of Statutory Sick Pay stretch?

 

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