Small, avoidable issues on your credit profile can prevent you from getting a mortgage. Many potential buyers only discover that their credit records are unsatisfactory once they have been turned down by a lender. A refusal by a mortgage lender has a further negative impact on your credit score which can jeopardise future applications; therefore, it is vitally important to get your credit report in order before applying for a mortgage.
As mortgage lenders use automated credit scoring systems to assess anyone who applies for a financial product, decisions are instant but also inflexible. If you're thinking of applying for a mortgage, first look at these all-too-easy mistakes you could make that could damage your file and result in rejection.
1. Not being included on the electoral roll
By being on the electoral roll you give an added assurance to lenders that you are who you say you are and live where you say you live.
"Being on the Electoral Register improves your credit score and supports your application because identity verification measures help protect lenders and borrowers from possible fraud. Therefore, electoral roll inclusion is more important than many people may think in getting approved for credit," says Stephen McShane, Mortgage and Protection Adviser for CPS.
2. Making too many 'hard search' credit applications at once
Loan, credit card and mortgage applications all leave a footprint on your credit file, with mortgage lenders doing a ‘hard search’ on potential buyers which lowers your credit score.
“Too many credit applications in a short period of time can cause a snowball effect and trigger rejections, as lenders might think you are desperate for credit – even if you are just shopping around. It’s best to get your credit file in order to ensure approval first time” advises Stephen.
3.Using too much of your available credit
Even if you pay on time and in full, maxing out your credit limit is a looked down on by lenders and can lower your credit score.
"When scoring you, lenders will look at the total amount of money you owe and the total amount of credit you have available so they can understand if you might be overextending yourself," Stephen says. He continues; "Having a high credit limit on a card but using a low percentage of it will have a more positive impact on your credit score than having a low credit limit but spending the entire amount regularly."
4. Forgetting to pay or skipping the odd agreed payment
One missed payment can last on your credit file for six years, so if you ever amend a direct debit or close a bank account make sure that your credit card, loan or mortgage provider is notified.
“However, your recent credit history is more important than your credit past,” says Stephen. "If you have had a chequered history of meeting agreed credit repayments, remember your most recent credit management counts more so try to keep your accounts up to date for as long as possible before making any new credit applications," he advised.
5. Failing to spot mistakes on your credit history
Errors on your credit file could mean you are repeatedly rejected for a loan, mortgage or credit card. Sometimes credit history errors arise from cases of mistaken identity. “You should thoroughly inspect your credit history and report any incorrect entries to the Information Commissioner's Office (ICO) which is responsible for protecting the accuracy and security of people's data,” advises Stephen.
If you would like for a CPS adviser to inspect your credit report, or if you would like to arrange a consultation to discuss your mortgage affordability and mortgage products, please call Neil on 028 95622188 or Stephen on 02837528888.