Your credit record could be the key to your mortgage application. We explain why, and how you can improve your chances of being accepted.
Lending confidence might have returned to many UK banks since a dip in credit approval rates during the recession, but a poor credit record can still be a serious problem when applying for your first mortgage.
Despite mortgage lending growing this year, many first-time buyers still have a hard time getting on the property ladder because of a poor credit profile.
So before you rush to find the perfect starter home, it’s important to get your credit record in order.
Lenders are cautious about who they lend to, preferring to deal with borrowers who represent the lowest risk.
Mortgage providers use credit records to work out your credit score. This reflects whether you’re a good risk by the lender’s standards, which can differ between providers.
This means that taking a look at your credit record should be your first port of call when you think you’re ready to buy. A poor credit score could halt the whole process.
'Preparation is key'
James Jones, head of consumer affairs at credit reference agency Experian, says it’s important for buyers to get their finances in order before they find the home of their dreams.
"Preparation is key. Have a look at your credit record before you start viewing properties,” says Jones.
"Some people leave making a mortgage application until after they’ve found a house.
"But if you leave it this late that’s when you can come unstuck if you then find it hard to borrow, particularly if you’re in competition with other buyers."
Will I be able to get a mortgage?
Lenders look at a number of factors such as your job, salary, and whether you have any current business with them when dealing with your application.
But they’ll also look at your credit profile to see your history of borrowing and repaying, and your current financial commitments.
This information will often determine whether your application is accepted, so it’s always worth taking a look at your credit rating, and if needs be, taking steps to improve it.
Credit reference agencies
Credit reference agencies like Experian, Equifax and Noddle give lenders a range of information about potential borrowers, which they use to make their decisions.
You can also apply to any of these three agencies for a copy of your own credit record. They often offer free introductory periods, though you’ll need to make sure you aren’t billed once they expire.
Jones says: “If you’re about to approach a mortgage lender it’s worth laying off making any other credit applications.
"For example, if they see you’ve taken out a large loan for the deposit on the house for example, this marks you down as a massive risk.
"This is important as lenders also take into account affordability, that is, whether you can afford the mortgage repayments, so they’ll look at what else you owe.
"So try and pay down debt before applying for a mortgage."
Credit records are updated monthly, so if you’re clearing debts, make sure you do it before you complete your mortgage application.
Building a credit record
Likewise, a lack of credit history can affect your chances of getting a mortgage.
If you’ve never taken out any type of credit, lenders don’t have any evidence of you budgeting to pay money back, which makes you an unknown risk.
In cases like these you'll need to build a good credit history to satisfy lenders that you can borrow and repay money effectively.
Take a look at our guide to improving your credit rating, which is full of tips on how to build a credit profile or improve a current, poor credit record.