Your credit history provides mortgage lenders with an indication of how financially responsible and reliable you; and helps lenders determine whether they will lend to you and at what interest rate.
Unfortunately; the importance of having good credit isn't highlighted from a young age which ultimately leaves many prospective buyers unable to get on the property ladder.
Here are Property Cohorts top 10 credit tips:
1. Check your credit
It may seem very simple but you'll be surprised how many people we speak to that have never checked their credit rating. It's the FIRST step to knowing what you need to improve and it's one of the first things that a lender will check when offering you a mortgage.
2. Use Experian or Clear Score
You only have to enter a few personal details and both will give you your credit score along with some tips on how you can improve your score. Clear Score is free and Experian offer a free 30 day trial.
PCTIP - See what you need to improve and cancel after the 30-day trial. You can always log back in at a later date if you want to check again. (It's very easy to fall into the trap of signing up to free trials then continuously forgetting to cancel the service when the direct debits start coming out.)
3. Plan in advance
If you're planning to buy a property, it's worth starting to manage your credit file at least a year in advance.Getting your credit up to scratch does not happen overnight!
4. Get yourself a credit card
If you've never had credit before, it's difficult for a lender to assess you. Consider taking out a credit card and making a couple of purchases on it each month and then repaying the balance in full at the end with a direct debit to build a good credit history. This will show that you can responsibly manage credit.
5. Never miss repayments
Always pay your direct debits and credit card bills on time, if possible pay off your credit card in full. (I am personally really against paying interest on credit cards, so I always pay off my full balance when it’s due as opposed to the minimum payment amount)
PCTIP - If you’ve made late payments in the past, set up a direct debit so you don’t miss them again.
6. Keep your credit card balances low
One major factor in your credit score is your credit utilisation. This is essentially how much you currently owe divided by your credit limit. E.g. If you have spent £8000 on a credit card with a limit of £10,000 then your credit utilisation is 80%. The smaller this percentage is, the better it is for your credit rating.To boost your score, pay down your balances, and keep your credit utilisation low.
7. Get on the electoral role
Your presence on the electoral roll provides valuable proof of your address to lenders. Electoral roll information is used to confirm your identity, which is then passed onto lenders when you apply for credit, to prevent fraud. Thus, if you're not on the roll when making an application it will appear that you don't exist, or you're starting afresh with no credit record; both will have a negative impact.Many people assume they're automatically registered, or don't bother doing it.
8. Be careful with your applications
Do not apply for lots of credit cards or loans at one time. Each time you apply for a financial product, a search will be recorded on your credit record (the so-called credit footprint). If you apply for lots of credit or are declined credit many times in a short period of time this will impact your credit rating.
9. You can get a mortgage if you have bad credit
There are specialists’ lenders who will lend to those with bad credit. For example, a company called the Mortgage Lender offer mortgages to the self-employed, older borrowers and those with poor credit.
PCTIP - Be aware that you may find yourself paying a higher interest rate due to poor credit.
10. Act on the above tips!
“To learn and not to do is really not to learn. To know and not to do is really not to know.”
― Stephen R. Covey, The 7 Habits of Highly Effective People
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.