Why mortgage applicants should get a copy of their credit report

Why all mortgage applicants should read their credit report

Everyone applying for a mortgage today knows that lenders check their credit report. It’s one of the key documents they use to approve or reject an application.

But, here’s the thing. Many (many) mortgage applicants are apathetic about checking their credit report themselves. Honestly, it leaves us scratching our heads trying to figure out why.

What the credit agencies say about you is important. Not just for mortgages, but also for all lines of credit. It’s the first impression a mortgage underwriter gets of you. And you need to make a good first impression!

Here’s why every mortgage applicant should know what their credit report says about them:

Impaired credit can affect even the highest earners

We’re vastly experienced in, and have won multiple awards for, providing specialist mortgages. Since 2004, we’ve helped all types of flexible workers to buy or remortgage their homes. From IT contractors to seafarers, from locums to oil & gas contractors: all have passed through our door.

But before the recent credit and cost-of-living crises, we rarely heard from contractors with impaired credit. In the last few years, though, even the highest earners seem not to be immune to running up defaults.

There are two things worth pointing out, here:

• Many of our clients didn’t know that they had defaults on their credit file
• Or, if they did, we literally had to force this information out of them

While it’s true that there used to be a stigma around poor or adverse credit, it’s no longer the case. That’s borne out by the number of lenders who now actively encourage enquiries from people with adverse credit.

We’re not saying ’embrace’ bad credit. But you shouldn’t be scared of it, either.

First step: getting hold of your credit report

You can’t address blips on your credit report if you’re unaware of them. And today, there’s really no excuse. Credit reference agencies (CRAs) offer free trials and charge low-cost, monthly subscriptions. But which CRA do you go to?

The big three in the UK are:

• Experian
• Transunion
• Equifax

Plus, some leading banks now even offer a version of your credit score in their apps.

You’d think that, by now, someone would have provided a way to see all your credit reports in one dashboard. Well, that’s exactly what CheckMyFile does.

Like agencies, they offer a free trial, then charge a small monthly subscription thereafter. Even if you cancel your subscription after you get your mortgage, it’s worth doing. Every time you get a ‘ping!’, telling you that your credit rating has increased, you’ll know you’re taking a step in the right direction.

There is really no excuse for not knowing your score, nor for not staying on top of it. But people don’t, and that’s what we want to change, today.

How does assessing my credit report benefit me?

Most homebuyers are ignorant of what their credit report holds. And, even if they saw it, would they know what to do about it?

Here are the key benefits of checking your credit report and keeping tabs on your credit score:

Do you know what a good credit score is?

Most CRAs use the FICO® scale, or something very similar, to assess creditworthiness. The scale ranges from 300 (poor) to 850 (excellent).

To get a mortgage with competitive rates, you’d ideally want to be in the highest of these categories:

• Excellent: 800-850
• Very Good: 740-799
• Good: 670-739
• Fair: 580-669
• Poor: 300-579

When referring to the FICO® scale, a typical credit score would comprise:

• Your payment history, including both paying bills promptly and missed payments: 35%
• What level of debt you’re currently servicing (what you owe compared to your credit limit): 30%
• The duration of your credit history, the longer and better-managed, the better: 15%
• New borrowing/credit agreements form a snapshot of your current financial stability: 10%
• Your credit mix: how responsibly you handle credit cards, loans, mortgages, etc.: 10%

Knowing your credit score can help you set realistic expectations. Knowing what makes up your score can help you manage it more carefully before applying for a mortgage.

What if I can only make part-reparation of my debts

No one expects you to wait until you have zero debt before you apply for a mortgage. Lenders rely on how you’ve handled debt in the past to help inform their decision. That pretty much implies that they expect you to owe something somewhere.

If you have a lot of debt, especially defaults and CCJs, you need to show lenders intent. Begin addressing the items that impair your credit rating. So, first, concentrate on the type of debt/bad credit that underwriters take most umbrage at. Recent defaults, CCJs, or missed payments will also not sit well.

Large debt, newly incurred, puts underwriters on their guard. So, wait until after you’ve secured your mortgage for any non-essential considered purchases. And, whatever you do, don’t miss any (more) payments to creditors in the run-up to applying for a mortgage.

You want to show them that you’re responsible with money and that you’re living within your means. The more you can do to prove you’d be a low-risk borrower, the better.

What if there are errors on my credit report?

One stat that contributes to mortgage rejection is incorrect entries on people’s credit files.

People with otherwise squeaky-clean profiles unwittingly submit their application. They think they’ll sail through the underwriting process. But, bang! An erroneous default rears its spiteful little head, and the lender rejects them.

When the applicants look into that default, they find it shouldn’t be there. And, after following the right channels, they get the default removed…
…but the damage has already been done!

Whilst the original default is later removed, the subsequent mortgage rejection remains on file. The knock-on effect is that lenders who’d have otherwise approved their mortgage could now reject them.

Lenders with common-sense attitudes to mortgage underwriting

That doesn’t mean it’s the end of the road. We have mortgage lenders who underwrite mortgages on a case-by-case basis.

So, provided you can explain why the lender rejected your application, you should be fine. But, because of that initial incorrect default, the very best rates may be off limits to you.

It’s not fair. However, a simple check of your credit report before applying can remove any items that shouldn’t be there.

Keep the dialogue open

CRAs want their databases to be as up-to-date as possible. Similarly, lenders want to base their judgment on the correct criteria.

There could be other reasons you may have experienced financial hardship. You might have lost your job, had a serious illness or experienced major upheavals at home.

Most agencies will accept a notice of correction from those affected. It won’t necessarily remove the offending items. But it can add context for anyone looking to give you credit.

An understanding underwriter will take these notices on board. But it’s imperative you apply to a lender whose underwriting team can be so accommodating.

Don’t let past associations bring you down

Another factor that can lead to your mortgage being rejected is past financial associations. These are credit agreements entered into with a partner, family member or joint tenants.

Since entering into those agreements, you’ve moved on and ‘assume’ that these agreements have expired. But what if your ex-partner/flatmate has since run into financial trouble?

If your report still shows this association, even if it’s just a joint bank account, it will affect your credit rating, too.

Similar to a notice of correction, CRAs can execute a notice of disassociation for you. However, you must inform them about the errors. Again, a simple review of your credit report will instantly reveal where these associations are listed.

How visibility of your credit profile helps us

We’re in constant contact with underwriting teams from over 30 lenders. Our brokers will know almost inherently which lender is most amenable to your financial situation. But we can only make an informed decision if we can understand your full financial profile.

Your credit report will help us approach the most relevant lender for your situation. Burying your head in the sand won’t help either of us.

As we said at the start, today, more lenders are open to discussions about credit issues. If you can demonstrate that you are aware of them and are making reparations, that’s great. Underwriters will take that into consideration when appraising your mortgage application.

Get your combined reports here.