Does your credit score really matter? Well... yes, if we're being honest. But why?
You may hear lots of people talking these days about their credit score. You only have to watch tv for 5 minutes before you'll see an advert from a credit agency selling your YOUR score for free on their website - so it's clear that this idea that you have a score based on your financial life is here to stay, and it's becoming more and more important.
Firstly, your score can vary from company to company. For example Experian rate you out of a possible 999 points, whilst Noddle (part of Call Credit) rate you out of 5, so it's important to know which score to look out. In the mortgage industry, Experian is the biggest player in this field, and is considered to obtain the most accurate information. So if you're looking for a mortgage and you want to check your credit first, we suggest going to www.experian.co.uk.
Secondly, there's a difference between a SCORE and a REPORT. A SCORE is usually given to you for free when you sign up to one of these credit agency websites. The score is useful to give you an overal picture of how lenders will see you, but it doesn't give the full picture. Your REPORT however will tell you everything about your accounts, such as when you opened them, how often you paid them, if you ever had a late payment and even when the account was closed. It's useful to see your report as the more information you have, the better your understanding of your financial situation will be. We often as customers to give us a copy of their report at the start of a mortgage application process so that we also have the full picture. Be careful though - some websites want you to sign up to them fully and pay up to £15 per month for your report. Make sure you're happy to do this and make sure you're happy with the information you're getting. And remember, you can always cancel your account if you don't want it anymore.
So how will it affect your mortgage? Well, in the first instance, knowing your score and having your report will help your adviser know where to start looking for a mortgage deal for you. Most the high street banks require GOOD or EXCELLENT scores to be able to get a mortgage with them, so if your score is low, we will start looking at alternative lenders at the beginning of the process, which saves everyone a lot of time.
The other way it can affect your mortgage is the rate at which lender is prepared to lend you the money once the mortgage is approved. If your have a high score, it's more likely that you'll have a lower interest rate on your mortgage as the lender will consider you to be low risk. If your score is low, the lender may be prepared to lend you money but at a higher rate, which will ultimately cost you more. Your adviser will talk you through this though and make sure you understand exactly what you'll be paying before you even apply for a mortgage.
So - your score and report is important, and it can determine how much you'll pay, and if you're even able to get a mortgage. So how can you make sure you have a good score and report? Well, in the first instance, the obvious answer is the best one - if you borrow money, make sure you pay it back when you say you will. Companies that lend you money report back to credit agencies and they will tell them if you're late or behing with payments.
There are other things you can do to help improve your score though, or protect it if it's already high. Here's my top tips:
1) Check your score regularly. Like I said, it's free and quick to do
2) Don't max out your credit cards. Lenders and agencies look at the percentage of your spending on credit cards. So for example, if your limit is £1,000, then try to only spend up to £500 on it before clearing it. This will show good money mangement.
3) Protect your identity - make sure someone isn't using your details to obtain false credit
4) Don't open lots of credit accounts if you don't need them. Everytime you apply, it can affect your score. Only have open what you need.
So there we go - credit is important and how it looks is really up to you. If you have any further questions or want ot know how your credit will affect your mortgage, get in touch today on 0845 094 1567 or email us on firstname.lastname@example.org and we'll be more than happy to chat it through with you - free of charge.
Bye for now!
James Adams is the founder and director of My Simple Mortgage Ltd, a whole of market mortgage advisory company based in Staffordshire.
My Simple Mortgage is a whole of market mortgage advice company helping people all over the UK find the right mortgage to either buy their next home or investment property, or to reduce their existing mortgage repayments.Contact Us
My Simple Mortgage Ltd, trading as My Simple Mortgage, is an appointed representative of HL Partnership Limited, which is authorised and regulated by the Financial Conduct Authority. My Simple Mortgage Ltd is registered in England and Wales with company number 09275345. Registered office: The White House, The Mount, Etruria Road, Newcastle-under-Lyme, Staffordshire, ST5 0SU.
The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
Your home may be repossessed if you do not keep up repayments on your mortgage. The Financial Conduct Authority does not regulate some forms of Buy To Lets.