Why you cant trust your credit score
Posted on 18th May 2023 at 12:14
When applying for a mortgage your credit file is a big determining factor 1. Whether you will be approved or not and 2. What sort of lender will accept you and the rates they can offer. Any good mortgage adviser will request a copy of your credit report during the initial meeting so that they have all the information that the lenders will see. That way they can find you the perfect mortgage, because they know which lender to contact or avoid based on what your credit file shows.
Now your credit score alone doesn’t show a full picture, only a small snapshot. Many buyers we speak with, in particular first-time buyers often get hung up on the actual score. The first thing that trips people up is the number itself which can be misleading as some providers score you out of 700 and some score you out of 1000. Obviously, if the provider scores you out of 700 then your score Is naturally going to be lower.
The score isnt what the lenders or advisers will look for. It’s your full credit file and credit history that matters to them. Your score is an indication of your history such as your credit usage and if you have made all your payments on time etc. But the credit history is what matters when applying for a mortgage. If you have a history of missed payments or show a heavy reliance of credit, then this is going to put lenders off when it comes to applying for a mortgage. The opposite is true when being approved for a mortgage. If your credit history shows small, periodic usage and you’ve never missed a payment then this is going to support your applicant and increase your chances of approval because you have evidenced that you can handle credit.
Having no history at all can have a detrimental impact on your score and having a long history of credit can do the same. We often see first time buyers who have never had any credit before have a similar score to somebody who has tonnes of credit and has missed a couple of payments within the last couple of years. So, the score isnt a true reflection. It’s the picture the full 6 year history shows on your credit file that you should focus on.
The credit scoring system is a bit of an enigma as having and using credit helps you to build your score but the second you take out a credit card your score drops? The aim of using credit to build your score is to do so over the long term. Using small amounts of credit little and often helps build that history over time. Our advice is using a small credit card (taken out over a year before buying your house) and only using it to pay for your fuel each month. Building up a small balance each week when you fill your car and then clearing the balance in full at the end of every month. This shows a track record to lenders that you can handle credit by using it in moderation and paying it back in full on time. If you cannot handle small amounts of credit like a credit card or Klarna, this doesn’t give lenders confidence that you can handle large amounts of credit like a mortgage.
Instead You should focus on your credit history not the score. You can help to improve your credit file with a few simple actions. Firstly, ensure that your current address is registered on the electoral roll, you have no missed payments on your file and if there are any errors or incorrect information then you can remove this ahead of your application. Best advice is if you are looking to buy your next home within the next 12 months then start looking at your credit file now to give you time to rectify any issues or improve the score over time ready for your mortgage application going in.
Key take aways are:
• Focus on credit history not credit score
• Remove any errors or incorrect information
• Keep paying all credit agreements on time
• Make sure the electoral roll is up to date for you
• Use credit little and often to build your history
For more information and advice please call us on 01482 205084 or drop us an email firstname.lastname@example.org
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