If you were about to lend someone a large amount of money then you’d want to know that they’re able to pay it back, right?
If your credit score isn’t very good but you need to borrow money, then don’t panic. There are ways you can improve it, and some are more straightforward than you think!
Why do we need a credit score?
Your credit score shows how trustworthy you are when it comes to paying back money you owe - whether it’s a car loan, a credit card bill, or a phone bill.
When it comes to taking out a mortgage, lenders look at your credit score to decide whether to…
- Lend you money
- How much to lend you
And sometimes even
- How much interest to charge
So here’s how you can improve your credit ratings…
1. Show an account history
Start by proving you have a good history when it comes to managing your finances.
Having a history of bank accounts e.g. a current account, savings accounts, ISAs, credit card etc. will give your mortgage adviser a decent history of your credit to look back through.
2. Declare your address
Lenders will need to see proof of your name and address in order to trust you are who you say you are.
Register on the electoral roll and make sure all of your bills are registered to your current address. This way, everything is easy to trace back to you and confirms your identity.
3. Use a credit card responsibly
Always try to keep a good amount of available credit. Available credit is the difference between your outstanding balance and your total credit limit. If your available credit is low, this would indicate that you’re struggling to keep tabs on your finances.
Also, never withdraw cash from your credit card. This will go against your credit score as it looks like you’re having to make the withdrawal because you have no money left in your own bank account - even if this is not the case.
4. Don’t miss repayments
This sounds like an obvious one, but missing payments will have a detrimental affect on your credit score. Missing repayments shows that you’re incapable of paying bills on time and therefore can’t manage your finances, which isn’t great if you’re trying to get a mortgage.
5. Don’t apply for more credit
If you know that you have bad credit - perhaps you’ve been buying things on your credit card for a while and only paying off the minimum interest - then you should stop using your credit card immediately.
Continuing to use credit cards will only be detrimental towards your mortgage application, and shows you can’t be trusted to pay back what you owe.
6. Don’t keep unused cards
Holding onto credit cards you no longer use is not only a fraud risk, but can also be misleading as to how much available credit you have.
Cancel any accounts you don’t use and cut up the card before throwing it away.
Need more help?
If you can make the above changes and prove you have a good credit score, then you’ll stand a better chance of being able to borrow the maximum amount to help you buy the house you really want.
If you’re concerned about your credit score, or would like to chat about your credit rating, please contact us.
Our expert mortgage advisers will offer guidance to help your application go ahead as smoothly as possible. Simply call us today to arrange either a face-to-face or over the phone appointment.
Read our Credit scores part 2: getting a mortgage with a low credit score article.
Important information
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.