It’s essential for those looking to secure a mortgage to check their credit report first. This blog will explain why, how it’s used by lenders and what to look out for, such as mistakes in personal details, credit card utilisation and defaults.

Check list to get credit-ready before applying for a mortgage

  1. Register to vote
    You need to be registered on the electoral roll in order for lenders to confirm your address. Doing so can also help the lender to trace your credit history.
  2. Be selective about your credit applications
    Too many rejected applications for credit can reflect badly on your mortgage application. This could suggest to the lender that you’re not creditworthy, or that you’re desperate – which could raise questions about your ability to make your mortgage repayments.
  3. Review your credit history and score
    Check your borrowing history in advance. This allows you to dispute any inaccuracies so that lenders will receive correct information on your ability to repay debts. Your credit score, on the other hand, will give an indication of how creditworthy lenders may find you. If your score is low, you may want to see if there are any credit habits that you need to improve on before making the mortgage application. It’s important to note, though, that scoring bands can vary among different credit reference agencies.
  4. Reduce your debt-to-income ratio
    This is the proportion of debt that you have in relation to the money that you make. The higher this number is, the more debt you have. Lenders typically prefer applicants with a lower ratio.
  5. Keep older credit accounts open
    These can demonstrate to lenders that you’ve been able to make repayments over a sustained period of time. You may want to close inactive accounts, though, as they would show lenders that you have too much access to credit that you don’t need.
  6. Make sure to pay bills on time
    Even if your credit history seems in order, don’t ignore bills in the run-up to your application. Your borrowing records are ongoing, so any slip-ups before you apply for a mortgage would show the lender that you may not be able to meet your mortgage repayments.
  7. Remove out-of-date financial associations
    Your financial associations could affect your ability to obtain credit. For example, you may have had a joint account with former housemates for paying bills, or you might have separated from a spouse. Their current and future borrowing habits could affect your credit applications, so ensure that you’ve removed these links from your record.
  8. Check on joint applicants
    If you’re making a joint application for a mortgage, you should know that lenders will assess the creditworthiness of all of the people applying. It’s important check with the other person or people whom you are applying with to make sure that they also have their credit history in order.

 How credit reports are used by mortgage lenders

Lenders use a range of factors to determine whether or not to give you a mortgage loan. There is no one simple solution for a successful application. However, the steps above could help boost your chances of obtaining a loan for purchasing property.

Here are some of the things lenders will check:

  • Recent applications: to see if you have recently applied for any other forms of credit or debt.
  • Payment history: payment history on credit cards, loans, lines of credit
  • Credit utilisation: A credit utilisation ratio is a factor mortgage lenders consider. This ratio indicates how much of your available credit you are using at a given time.
  • Major derogatories (such as bankruptcies) or any negative mark that makes you look riskier as a borrower.
  • A dispute statement: to see if there are any dispute statements or pending disputes on your credit report and may look upon them negatively.

How to check your credit score and credit report

In the UK, companies called ‘credit reference agencies’ (CRAs) compile information on how well you manage credit and make your payments. They have a statutory obligation to provide you with a copy of your credit report for free.

The three main CRAs are:

  • Experian
  • Equifax
  • TransUnion

Each of them holds a file on you, called a credit report (or credit file).

Check your credit report with Equifax

Check your credit report with Experian

Check your TransUnion credit report with Credit Karma

What is in your credit report?

Your credit report typically holds the following information:

  • A list of your credit accounts. This includes bank and credit card accounts as well as other credit arrangements such as outstanding loan agreements or utility company debts. They will show whether you have made repayments on time and in full. Items such as missed or late payments or defaults will stay on your credit report for at least six years.
  • Details of people who are financially linked to you, for example, because you’ve taken out joint credit.
  • Public record information such as County Court Judgments, house repossessions, bankruptcies and individual voluntary arrangements. These stay on your report for at least six years.
  • Your current account provider, but only details of overdrafts.
  • Whether you are on the electoral register.
  • Your name and date of birth.
  • Your current and previous addresses. If you’ve committed fraud, or someone has stolen your identity and committed fraud, this will be held on your file under the CIFAS section.

Your credit report doesn’t carry other personal information such as your salary, religion or any criminal record.

So, it’s important to get your borrowing history in shape, so that mortgage lenders may view your ability to repay loans in a favourable light.

At Beaufort Mortgages, we find the best mortgage rates for First Time Buyers, Home Movers, those looking to Remortgage and landlords requiring Buy To Let mortgages. Get in touch with Dan Godfrey, our independent mortgage adviser.