When you’re busy searching for your dream home, it’s easy to forget all about your credit score.
Whether you’re taking a leap into the world of mortgages or you’re looking to rent, your credit score could affect your ability to move out. In this blog, we look at whether a bad credit history can limit your options and what you could do to turn things around.
If you’ve finally gathered enough funds to put down a deposit, you’re probably on cloud nine. And so you should be! But you might find that, even if you’ve got the funds, your credit score could prove to be an obstacle along the way.
Mortgage lenders are going to be lending you a lot of money, so they’ll turn your credit background upside-down and inside-out before making a decision.
What can mortgage lenders see?
Lenders will carry out checks to see how reliable you’ve been at paying your debts in the past. It almost seems like there’s no limit as to what mortgage lenders will get their hands on, from payslips to bank statements to P60s. Your credit history plays an important role in a mortgage lenders decision, as they like to see evidence that you’re good at borrowing money.
They’ll look at how much credit you’re using to decide how responsible you are. If you’re using lots of your available credit limit, they might worry that you’re struggling to live within your means, which could make them feel uneasy about lending you money.
Another thing they’ll look out for is the amount of debt you’re in. If you’re paying off large sums of debt on a regular basis, mortgage lenders might worry that you won’t be left with enough to cover your repayments.
What can I do?
Before you apply for a mortgage, it may be a good idea to close down any credit accounts you’re no longer using. This should help reassure mortgage lenders that you’re not using too much credit, whilst keeping open those accounts you often use and pay off in full. You can check your report to see if you’ve got any old accounts you might have forgotten about.
It’s also wise to clear as many debts as you can before you apply. This’ll make you look better to mortgage lenders who might be considering you, as your income can be paid towards your mortgage rather than debt payments.
If you’re applying for a mortgage and you have bad credit, it doesn’t mean you won’t necessarily get approved. You could opt for a bad credit mortgage, which is simply a mortgage offered to people with a less than perfect credit score. This usually means you’ll have to pay higher interest rates, as you’ll be a bigger ‘risk’ to lenders.
Looking to rent instead?
You might have thought you’d be safe from credit checks if you’re only looking to rent a property, as you’re not borrowing a huge sum of money as you do with a mortgage.
However, landlords can now ask to see your credit history before they decide to let their property to you. Credit reference agencies, like Experian, offer tenant checks so landlords can work out how much of a risk you’ll be.
What can landlords see?
Along with your income and employment status, the report will highlight any red flags in your financial background.
While landlords can’t see that three-figure score, they’ll be able to access public records that indicate you’ve got an adverse credit history, such as CCJs or defaults. If you do have an adverse history, landlords might worry that you’ll be unable to make rent payments on time.
In a detailed report, landlords can ask for a reference from your previous landlord, including your reliability and track record of making payments on time. So again, while they don’t necessarily see how you deal with credit, they’ll be able to get an idea of how you manage payments.
What can I do?
You could turn the tables round once you’ve found a property to rent by using a rent reporting service such as Credit Ladder. You can make your rent payments go towards building your credit score.
You could also see if you can remove mistakes from your credit report before searching for a new home, or settle any defaults to make landlords look at you more favourably.
Already own a house?
If you’re already a homeowner, you’re probably fairly relaxed when it comes to your credit score. However, if you’re looking to remortgage your property - whether it’s to buy an additional house or simply raise funds to clear off debts - you might find that your credit score could scupper your plans.
What can I do?
As with a first-time mortgage, you’ll need to demonstrate a positive history of making payments and handling money. If you do have a bad credit history, you could follow some useful tips which could help improve your credit score.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.