Your credit score is the outcome of an assessment of information gathered from two main sources: lending companies that have an agreement to share information about their customers, and public records.
The information shared by lending companies includes things like how much a customer owes them, whether they pay on time and in full, have ever missed a payment, or been in default.
Information held on public record includes information on the electoral roll, and details of issues such as County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs) and bankruptcies.
How is a credit score calculated?
Lenders interpret the data and use it to calculate a credit score – this number forms the basis upon which they decide whether to offer credit. Different lenders can interpret the data in different ways, which is why one might decline a credit request while another grants it.
Where can you check your credit score?
You can get a copy of your credit report from any of the UK’s three main credit reference agencies: Experian, Equifax and Callcredit. It’s a good idea to get all three as they collect information from different sources and you want to see the full picture.
How can a credit score affect a mortgage application?
Your credit score is seen as a measure of how you handle your financial commitments, so it will indicate how well you would be likely to handle a mortgage. If you keep your payments up to date and your credit card balance well below the limit, you are seen as a better bet than if you often pay bills late, miss payments or max out your credit cards.
The older the issue, the less impact it has, so missing a payment a few years ago will be less important than missing one a few months ago.
Even if your credit score doesn’t prevent you from getting a mortgage, it might mean you are expected to pay more in terms of fees and interest to offset any perceived risk in lending to you.
How can you improve your credit score?
Improving your credit score is a continuous process. There are some things you can do that can help immediately, but with most it’s a case of building a picture of low debt and prompt payments. Here are some tips:
Make sure you are registered on the electoral roll.
Get a copy of your credit report from each of the UK’s three credit reference agencies, check that the details they hold are correct and get in touch to have any errors amended.
Make sure you pay your bills on time.
Keep track of your credit card balances; stay within the limit and try to pay more than the minimum amount each month.
Cancel any credit that you don’t use, such as store cards – but if you have a credit card that you don’t use, rather than cancelling it, use it at least once a month and pay it off in full every time.
Can you get a mortgage with a bad credit score?
It’s possible to get a mortgage with a poor credit score, but it will probably cost you more, and you may have to borrow less. Bad credit events stay on your credit record for six years; in some cases, you might have to settle for waiting it out until they disappear.
Consider speaking to a qualified advisor for help improving your credit score. Alternatively, Mortgagemove has relationships with a number of lenders that specialise in bad credit mortgages, so get in touch today to find out more.