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If you’ve ever bought a property before, or you’re just starting to look at the process, you might think the mortgage world is a bit of a mystery. You’re asked to supply lenders with stacks of information about yourself, your earnings, your past and your circumstances, and then once they’ve chewed through it all they tell you if they’re willing to lend you money for a mortgage or not. Many lenders keep their processes under wraps intentionally, so it can be difficult to work out beforehand if you’ll be eligible or not.
What I’m here to tell you today is that your credit score has a big impact on their decision. And once you know what they’re looking for, it becomes much easier to get your finances in good order so that you’re more likely to be approved for a mortgage right away. Want to know what they look for? Read on.
The Big 3 Credit Agencies
As a general rule, mortgage lenders will check you against 3 credit agency reports – Equifax, Experian and TransUnion * (Knowledgebank – correct as of April 2022). You can have access to all of these platforms as well, so you can view your own credit report and see where you stand. These reports will give you an overall credit score (for example, 892 out of 1000), and an overview of your credit and usage. This is less about the amount of credit you have, and more about how close you are to your credit limits. If you are near the limits of your lending then you have an overexposure, and this makes you a riskier prospect to lend to.
Under your credit limit information, you will find a breakdown of payments in years and months. It looks something like this:
*www.checkmyfile.co.uk
Here you can see a few different notes. The green circles are when you made all of your payments and everything is fine. The yellow circle with a 1 in means Status 1 – you’ve missed one payment. If you continue missing payments or running your accounts in arrears, that number will go up and up until it reaches Status 6. This is when a notice of default will be issued, and the company you owe money to can take you to court and have a County Court Judgement issues.
If you have a status above 2, i.e. 2 consecutive missed payments or 2 payments in arrears, on a mortgage payment, then most lenders will not give you a mortgage for at least 2 years.
Enquiry Footprint
Underneath your main credit score, you have your enquiry footprints. This is a record of every credit search that has ever been done on you, either by yourself or other agencies assessing your eligibility for credit. It’s just a record of which company has been searching your credit report, and whether they have done a soft or a hard search.
Within this there will also be an audit footprint, which is a record of any other accesses to your credit report – which is usually just you checking your own report. The audit footprint isn’t visible to lenders or any other parties, and it doesn’t affect your credit score at all. It just allows you to keep tabs on your report activity.
Electoral Roll
Finally, you have the electoral roll. This is something you might not think of right away, but something most people don’t realise is that the details you provide to the electoral roll every year are sold to the credit reference agencies by your council. The agencies then use this information as the foundation for your credit report, and add all of the other elements of your credit report on top of it. So if you’re not on the electoral roll at your current property, you might struggle to get any credit, let alone a mortgage. That’s because the agencies will suspect they don’t have your full credit report. So it’s vital to ensure you’re on the electoral roll at every address you’ve ever lived by registering to vote at that address. Even if you never intend on voting, it’s an important part of building a good, strong credit report. If you are only living somewhere temporarily, consider having a permanent address where you are registered on the voters roll. Lenders do not like to see multiple addresses over a short period of time, and where possible, setting up in a permanent address can help protect your credit report and minimise identity fraud. *https://www.experian.co.uk/consumer/guides/electoral-roll.html
So there you have it – the foundations of what lenders look for when assessing your eligibility. Of course there are other things they look for, but this is the basis of pretty much every lenders process, and it’s the thing you have most control over. If you’ve been struggling to get approval for a mortgage, then it might be time to speak to a whole of market mortgage adviser, like me!
I specialise in offering mortgage advice, in areas such as first time buyers, re-mortgages, later life lending and complex mortgages (for example, company directors, the self-employed, or people with CCJ’s), and have access to a comprehensive range of lenders. This means I’m ideally placed to find the most suitable mortgage based on your individual needs and circumstances, potentiallyat better rates, and you could be able to borrow more than you would applying on your own. If you would like to know more, just get in touch with me today for your free initial, consultation.