If you’re looking to start applying for a mortgage, but you have a less than perfect credit score meaning you won’t qualify for the best possible rates, there are some simple steps you can take to give your credit rating a boost before you apply.
Some are quick changes, and some will take a few months to affect your score, but a combination of the tips below will definitely start to have a positive impact and make qualifying for credit easier.
Before you apply for a mortgage, or any kind of credit, you should thoroughly check the information recorded with all three credit reference agencies. It is important that there are no inaccuracies as this can have a negative impact on your score.
Check that your full name, date of birth, address and current account information are all accurate and up to date. If you find any mistake, report it to the agency as soon as possible to have it corrected.
If you’re not registered on the electoral roll, this can negatively impact your score as it will be harder for lenders to find proof of your identity and current address. You can easily register for the electoral roll by contacting your local council.
If you are linked to anyone who has a poor credit rating, this could be bringing down your personal score. Maybe you opened a joint bank account with a friend you shared a house with 10 years ago or you still haven’t closed a joint credit card with an ex-partner? If you haven’t informed the credit reference agencies, they may still be linking you to this person so it is important to make sure you are un-linked to anyone you no longer have joint finances with.
You want to keep your credit utilisation ratio as low as possible – around 30% if you can. Your credit utilisation ratio is the percentage of your available credit that you use, for example, if you have a credit card with a £1,000 limit and you use £600 of this per month, your credit utilisation ratio is 60%. Keeping this as low as you can will show lenders that you can budget well and spend responsibly. If you are maxing out your credit card every month it will appear to lenders that you are not good at managing money. Try to split payments between cards and try not to use your credit card for everything, especially if you are soon to be applying for a mortgage.
You need to make sure that all credit limits recorded on your report are accurate. For example, if your credit card provider boosted your limit and didn’t record it with the credit reference agencies, it may appear on your record that you are maxing out your credit card every month, but you are actually only using 50%.
Instead of closing credit accounts that you don’t use any more, it is a smart credit score boosting strategy to keep them open – as long as it isn’t costing you any money in annual or monthly fees. If you have two credit cards but only use one, keeping the unused account open will increase your overall credit limit. If you close it, your overall available credit limit will reduce and you will be using a higher percentage of your limit which, as described in point number four, can have a negative impact on your score.
It is important to check that your credit report isn’t showing anything that you didn’t do – for example, a loan application that was done fraudulently in your name. If there are multiple applications or declined applications on your report, this will be having a very negative effect on your score.
Excessively applying for credit that you don’t necessarily need or won’t qualify for can harm your credit rating as it makes you appear desperate for credit. So, in the run up to your mortgage application it’s probably best to not apply for any other forms of credit, unless it is something essential.
Doing this will rely on having someone who doesn’t mind you being added to their credit card as an authorised user - but you’re not actually going to be using the card. Of course it needs to be someone who uses their credit card responsibly and isn’t using a high percentage of their available limit. As you are an authorised user, the usage of that card will be added to your credit report – so, if they’re using it well, then it will be boosting your score too.
If you a have a fairly low credit score, you may want to consider getting a credit-building card. These cards are specifically designed for those who have a poor credit score, or a lack of credit history. The credit limits tend to be quite low and the rates can be high, but if you use this card responsibly by using a low percentage of the limit and paying it back on time every month, it will show lenders that you are creditworthy.
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Find it useful? Please share!
Last updated: 31 January 2020 | © KIS Bridging Loans 2020 |