9 top tips to help you get a mortgage if you have a poor credit score
Using our guide to getting a mortgage when you have poor credit, most people will be able to buy the home they want. However, there may be occasions when you need to improve your credit for a mortgage. These nine tips will help you to increase your credit score and make it easier to get a mortgage.
1. Check your credit files
Order credit files from Experian, Equifax, and Callcredit. Review them for inconsistencies, and make sure that all entries are correct.
2. Correct inaccurate information
One of the most common problems on credit files is wrong information. You should review your file with a fine-tooth comb and dispute any incorrect information immediately. You’ll need to contact the credit reference agency and tell them which information is wrong and why. For example, it may be that there is an account shown open that has been settled and closed.
3. Get all your accounts up to date
If there are accounts on the file that are showing with late or missed payments, you should update them or pay them off as soon as possible. This will ensure that:
- Overdue accounts start to drop off your credit file
- Your debt-to-income ratio will fall, increasing the affordability of mortgage payments
4. Pay all your credit facilities by the due date every month
Mortgage lenders want to know that you are a reliable borrower, and that you make debt repayments in a timely fashion. You should:
- Pay your credit card balance every month, by the due date
- Put all bill and regular payments on standing order or direct debit
Pay all your bills in a timely fashion, and a lender will see that your financial management has changed. Your credit score will start improving after only a few months.
5. Stick to your spending budget
Don’t overspend, and keep your bank account in the black. Now and again you may need to use an overdraft facility to pay for emergencies, but you should avoid being constantly overdrawn. If you must use your overdraft facility, don’t exceed the agreed limit. This rule is also true of your credit cards, store cards, and other credit facilities you may have.
Keeping in the black and not overspending shows a lender that you live within your means and have a good control of your finances.
6. Don’t apply for new credit
If you apply for new credit facilities on top of those you already have – credit cards, personal loans, HP, etc. – your credit file is marked negatively. Resist the temptation and only spend within your means.
7. Register on the electoral register
Registering on the electoral register is one of the easiest things you can do to improve your credit score. Lenders can confirm who you are, helping them to determine your eligibility for a mortgage. Check with your local authority and ensure that you are on the electoral register.
8. Open a credit card
Although you shouldn’t open new credit facilities, if you have none then lenders don’t have a point of reference to judge your reliability as a borrower. One of the easiest ways to provide this evidence is to open a credit card (there are several cards available to those with bad credit files).
The immediate effect may be to lower your credit score, but after a few months of spending on your card and repaying your monthly statement in full your credit score will improve – providing you use it wisely and repay that balance in full every month.
9. Don’t close all your credit accounts
While lenders don’t like to lend to people with lots of open credit accounts, they do want to see a history of credit and credit used. Your credit score is also affected by something called the credit utilisation ratio. This tells a lender much about your financial situation. Here’s how it works:
- Let’s say that you have three credit cards, each with a credit limit of £5,000.
- Two of the cards have outstanding balances of £3,000.
- The third card has a zero balance.
- Your credit utilisation ratio is 40%.
- If you close the card with a zero balance, your credit utilisation ratio rises to 60%.
The higher your utilisation ratio, the less likely a lender is to offer you a mortgage. So, in this case, closing a credit facility would work against your aim of improving your credit score.
Putting these tips into practice will help to improve your credit score. However, it takes time to filter through to your credit file. You should keep a check on your credit score and make sure that you are taking action to continually improve it.
For more tips on how to do so, or if you need advice on bad credit mortgages, contact Mortgage Thoughts today.