If you want to mortgage/remortage it pays to understand credit scoring
Catherine Crooks, The Fresh Partnership, Mortgage Broker for PAD4U Letting Agents Manchester writes:
What is a credit search?
A credit search is when a lender/creditor obtains information about you from your credit file via a credit reference agent (CRA). The CRA’s are called Experian, Equifax and Callcredit. Each lender may use a different CRA, and in some cases they may use multiple sources. The credit search includes checking your credit history, financial commitments, and general conduct. Your credit file will also show address history, whether you are on the electoral roll, whom you have financial associations with, record of county court judgements (CCJ), missed payments, defaults, mortgage arrears and details of any repossessions. The information is usually held for 6 years. A credit file will also include details of any CIFA records, which is a fraud prevention service.
A CRA will hold a substantial amount of financial data, but does not hold the following:
- Child Support Agency
- Motoring offences
- Criminal records
- Health records
What is a credit score?
More commonly nowadays a lender will credit score your application. There is no universal credit score; and depends on the individual lender’s scorecard. You can check your credit score using a CRA but it does not mean you will score the same with a lender. The lender will score using information from both application form and credit file.
I have had several cases declined at decision in principle stage recently, after investigating it has come to light that the address details registered at the CRA were incorrect, so the lender was unable to pick up any credit history, and subsequently the case declined. Once the address format was corrected, the problem was rectified.
As each lenders score card is different, and they don’t give away their ‘secret’ scoring method, it is sometimes quite frustrating to find out you have failed, more so when you know your credit history is impeccable. I am going to provide a list of what lenders may take in to consideration when scoring your application, and how you could possibly improve your success rate:
- Get on the electoral roll. If you apply for a mortgage and you’re not on it, it is more than likely you will not pass the decision in principle stage.
- Make sure all details on your credit file are correct including spelling of your name, address, previous addresses, credit data etc. The CRA should be informed of any amendments ASAP.
- Always give your full name including all middle names (to replicate what is registered on your credit file).
- Try not to leave too many footprints on your credit file within a short space of time, as this pulls down your score. Even applying for car insurance can pull down your score, so can mobile phone purchases, basically anything where you may be entering in to a credit agreement.
- Check with your broker/lender whether a decision in principle will leave a hard or soft footprint on your credit file. A soft print will allow you and the creditor to see the record, but other lenders are unable to see, so this is the better of footprints. At application stage, it is likely that the soft footprint will become a hard footprint, which means all viewers of your credit file will be able to see whom you have applied to for credit.
- Moving house will bring down your credit score, as this breaks stability.
- Moving jobs, or short employment periods will bring down your score.
- Try and avoid a financial association with someone who has bad credit. For example if you’re on a mortgage or have a joint bank account with someone who has bad credit, you may find you will also encounter difficulty obtaining credit.
- It is important to try and avoid late or missed payments.
- Satisfy any defaults/county court judgements ASAP.
- Employed applicants usually score higher than self employed, but obviously there is nothing you can do to change this.
- Fill in as much of the application as possible, including work and home telephone numbers. As crazy as it sounds, leaving your home number off a mortgage application can pull down your credit score.
- Cancel any credit facilities that are no longer required. The lender will assess any available credit as a financial commitment.
- It is important that each and every time you apply for a mortgage, the information you provide to the lender is consistent and accurate. Lenders use a system called National Hunter to ‘talk’ to one another, so please make sure all details are correct.
- If you surprisingly fail a decision in principle, you may find this is because nowadays lenders are using their scoring systems to control business volume. However, don’t always assume this is the case; you or your broker should contact the lender and ask for a reason. In the event of your failing with one lender, you may pass with another (but please remember the ‘don’t leave too many footprints’ rule).
- Finally, if you don’t have any credit, it may be worthwhile applying for a credit card. Please remember to repay your balance every month, especially if you are on an extortionate interest rate. This will build your financial credibility and allows the lenders to assess your attitude to repaying debt.
Experian currently offer a 30 day free trial to check your credit file. Please remember to cancel the trial before the 30 days expire, as if you don’t they will take payment from the card details given.
Hope this helps!