If you’re thinking about buying a house sometime soon, it’s a good idea to pause for a moment and double check your credit score before you submit any application materials. Your credit score plays a huge role in the interest rate you’ll receive when you apply for a mortgage – that doesn’t just apply to home loans though; the same holds true for personal loans, credit cards and any other form of credit. Our latest article looks at how to improve your credit score before that all important mortgage application.
What is a credit report?
Your credit rating (also known as a credit score) is a snapshot of how you’ve managed money in the past – including past borrowing, repayments, how much of your available credit you routinely use, how many payments you’ve missed and several other factors to create a score. The higher the score, the better your chance of being offered a better deal on your mortgage. There’s no “magic number” that guarantees you’ll be approved for a new credit account or receive a particular interest rate from a lender. However, higher scores typically suggest that you have demonstrated responsible credit behaviour in the past, which may make potential lenders and creditors more confident when evaluating a new request for credit.
How can you improve your credit score?
Depending on your unique financial situation, it can take anywhere from one month to a few years to improve your credit score. Improving your credit score isn’t something you can achieve overnight, but don’t let that dishearten you. Every credit score can be improved with a little commitment and perseverance. Some of these ways are:-
Paying bills on time
Making sure your bills are paid on time is the best way to prove to lenders you’re able to manage your finances effectively. Not all bills count towards your credit score, so it’s worth checking which ones do by looking at your credit report and if you’ve missed a payment or worried you will miss a payment, you should contact your provider as soon as possible.
Ending financial association with others
If you have a joint bank account, or other joint borrowing, the other persons credit rating can affect your own. Breaking these financial links with someone who has a poor score can be difficult, but could boost your credit score within a month.
Check details held about you
Especially if you’re planning an application, it’s worth checking the details held by each credit reference agency. If any of their information is incorrect, you could submit a data dispute to the relevant agency, so they can investigate and update their records accordingly.
Use a range of credit options
Having a mix of credit accounts shows you can manage different types of borrowing, from secured lending, such as a mortgage, to unsecured credit cards and loans. Even if you have a good income, if you don’t use any form of credit, your credit score may be low.
Avoid moving home a lot if you can
This isn’t always possible to avoid, but it’s worth bearing in mind that lenders like to see stability in your circumstances. Moving home frequently may make lenders think you could be having trouble paying rent, for example. Find out why your address is an important part of your credit history.
For further information on how to improve your credit score, please contact us here.
