Last Updated on 6th July 2020
Don’t let a bad credit score get you down. You can improve your credit score using a variety of proven methods. “Time is a great healer” and this couldn’t be more true when improving your credit score for a mortgage. Time is certainly a great healer for your credit score, however you can sky-rocket your road to repair following the steps in this guide.
It’s also important to understand that when you apply for a mortgage, your credit score is only part of your mortgage application. The way lenders interpret credit scores can vary, so having a great credit score won’t guarantee you a mortgage. Nonetheless, a great credit score is better than a bad credit score, so let’s get started.
What is a credit score?
Your credit score is based on your credit file. Think of your credit file as your credit record which contains all of your credit history. Your credit history is a mixture of every piece of information regarding your credit, including debt, payments and accounts. The way you’ve handled the credit available to you will ultimately provide you with a credit score. Credit scores vary between 0-999, the higher the score the better.
When you apply for a mortgage or any other form of credit, lenders will check your credit score. Your credit score gives lenders an indication of whether or not you’re reliable with repayments. A mortgage is a loan and it has to be repaid to the lender, so lenders need to know if they’re likely to be repaid or not.
A great credit score will be a tick in the box. A bad credit score can result in mortgage applications being declined. That being said, it is possible to be declined a mortgage with a great credit score and it’s possible to secure a mortgage with bad credit.
Having a great credit score will always be advantageous. Great credit scores usually open doors to other forms of finance and can be secured on lower than average rates. This is because you’re deemed to be reliable in repaying your creditors. A credit score can determine whether or not a lender will lend to you, how much they’ll lend and at what interest rate.
How to improve your credit score for a mortgage
Improving your credit history before applying for a mortgage can often be a smart move. Lenders will usually check your credit score, which is typically a reflection of how you’ve conducted your credit affairs in the past six years. Historic issues such as a default which took place ten years ago, more than likely won’t even be acknowledged by lenders. If your credit issues are more recent, you can take the steps below to fast-track your credit score to recovery!
Check your credit report
First things first, download a copy of your credit report. If you’ve not yet checked your credit report, it may not even be as bad as you think. Downloading your credit report won’t leave a footprint of any kind. Remember, a footprint is only left when you actively apply for credit.
There are three main credit agencies in the UK. They are Experian, Equifax and Callcredit. The majority of lenders use Experian and Equifax with a smaller number of lenders using Callcredit. We’d advise you to download reports from all 3 agencies as they can differ. Websites such as Check My File allow you to download all your credit files in one place.
If you notice any discrepancies or incorrect information on your credit reports, then be sure to inform the credit agency. Also, check that your information is all relevant and up to date, including personal details and account information. Furthermore, look out for anything that seems suspicious and notify your creditor immediately. Identity fraud is a problem and many people aren’t aware until they’re affected.
Take control of your finances
The chances are you already have a bank account. If you don’t, then create one as soon as possible. You need to have a credit card or use some sort of credit facility to build up your credit history. No credit history will result in no credit score! How can a credit agency give you a score if they have no credit information for you?
You’re reading this because you want to improve your credit score, so you’ve probably already got bank accounts and have used credit cards, but at some point, a financial dip has caused your score to drop. Even having a bank account and not using your overdraft can show credit agencies that you’re financially stable.
Make sure your credit is repaid on time. Repaying credit on time across a time period can improve your credit score. If your credit history shows late payments or CCJs, then your credit score will be downgraded. A year of keeping your finances in shape can make all the difference in being approved or being declined a mortgage.
Get on the electoral roll
Being registered on the electoral roll is key in improving your credit score. If you’re a British citizen, this should be pretty straightforward. Being on the electoral roll is vital, as lenders will check to see if your given address is the same as your registered address. It’s also easier for lenders to confirm your identity.
Discrepancies with where you reside can cause implications that can simply be avoided. Improve your credit score by registering on the electoral roll as it’s perhaps the easiest and most effective way to take control of your credit file.
Use more credit facilities
If you’re bad with credit, this might sound like a bad idea, however using more credit facilities can really help to improve your credit score. This is because active credit enables you to make repayments. Lenders love to see previous borrowing history and how you’ve conducted yourself when repaying. Don’t overdo it though, too many accounts which too much credit will have an adverse effect.
If your credit is very bad and you’re unable to take out any more credit facilities, try smaller forms of credit such as mobile phone contracts. You can also try using credit cards designed for adverse credit. Adverse specific credit cards will have higher rates if your credit score is low, however if utilised correctly, can be a great way to improve your credit score. Ensure your card is used every month and the balance of credit is repaid on time. The longer you have a well-managed account, the stronger it indicates you’re responsible with credit.
Close unused accounts
If you have credit cards which you don’t use anymore, simply close the accounts. Lenders may consider other forms of credit that are available to you. Having multiple credit cards that aren’t managed well definitely won’t help you to improve your credit score. Having a few accounts which are squeaky clean will!
If you’re aiming to get another credit card because of adverse credit, then it may be a good idea to reshuffle your finances and close unused accounts. Stick to a few well-managed accounts, the fewer accounts the better.
Don’t miss any more payments
We know we’ve already said it, but it’s very, very important! So, we’ll say it again…
Don’t miss any more payments and ensure your creditors are paid on time. If you think you’ll be making a late payment, let your creditor know as soon as possible. Many creditors will appreciate your proactive approach and are likely to work with you.
Think before applying for credit
Making multiple applications for credit isn’t healthy for your credit score. It also shows lenders that you’re too reliant on credit which may portray you to be financially unstable. Credit should only be used to supplement your finances, not dictate them.
Having available credit shows lenders that you don’t need to rely on credit, but it’s there for you to use. If you’re always maximising your credit allowances, the credit available to you will always be low. This can be a warning light for lenders and will reflect in your credit history.
Settle any outstanding debt
Settling any outstanding debt can show lenders you’ve taken some financial responsibility. Leaving debt will only stay on your credit report. Although credit history usually reflects the last six years of your financial profile, settling debts can speed this process up. A settled debt shows financial recovery whereas as unsettled debts can cause concern for lenders.
If you’ve lived abroad
if you’ve lived abroad and have more credit history in a different country, you may be able to request your credit history from a credit agency based overseas. This can be important if you’ve not been in the UK for long and wish to apply for credit. The overseas credit agency may be able to transfer credit information to a UK credit agency.