Switch on the TV or look in the paper and you’ll see one of the largest credit agencies encouraging you to check your credit report. They’ll go as far as providing you with a credit score which is all important when securing any type of finance.
It is important to understand that there are things that you can do in order to improve your credit score but it is also very easy to have a false sense of security about your ‘excellent’ credit rating.
Ways of improving your credit score are to ensure that you are on the electoral roll and make sure that all of your financial commitments i.e credit cards/HP/loans are correctly registered.
Clearly in relation to a new mortgage you need to make sure that these commitments are up to date and that you have maintained monthly payments on a regular monthly basis. It is easy to be late on a credit card payment which will certainly impact on your chances of obtaining a mortgage so set up a direct debit for the minimum payment and pay extra where you can.
Credit cards that are running at their maximum credit limit also do not help you obtaining a mortgage as it may be an indication that you are living beyond your means.
The one issue I want to highlight is that of your actual address. For those living in a house or purpose built flat this is less of a problem but for the many that live in converted flats how the address is set up is of paramount importance.
I recently had such a client who for all intents and purposes was the sort of applicant lenders should have been falling over each other for to obtain the business, yet three lenders declined on credit score despite the client having an ‘excellent’ credit rating. The mortgage was placed but at less attractive rates and with a lender that didn’t credit score and could see the lending was highly unlikely to be problematic.
The reason this client was declined at credit score was simply because of the variances in the format of his address. Whilst he was on the electoral roll, he had an existing mortgage and a credit card all three addresses were slightly different. For example, 12a Smiths Road, could be:
- Ground Floor Flat, 12 Smiths Road
- Ground Floor Flat, 12a Smiths Road
- 12 Smiths Road
One of the key problems here is if the property is not registered on the Royal Mail database correctly then different providers including the local authority will ‘make up’ their own formats. Therefore when you apply for a mortgage and state your address is 12a Smiths Road, the lender may not be able to ascertain that you have a credit card or loan because they are registered at Ground Floor Flat, 12 Smiths Road and there you have a reason for a potential declined mortgage.
You would think if you could provide evidence to the new lender that you have a well maintained financial commitment that they would accept this but that is not the case. Underwriters should underwrite the risk but it is extremely rare for any underwriter to overrule what their own credit score states – lenders have become far too reliant on automation which whilst having huge benefits the example above is one of the disadvantages.
So don’t take a credit score with a credit reference agency as being a guarantee of obtaining finance, it is a guideline, an indication, nothing more.