Getting credit-ready for a mortgage
The process of buying a property doesn’t start with selecting a home within your budget.
Often, it’s worth preparing months in advance if you need to apply for a mortgage. You’ll need to get your borrowing history in shape, for starters, so that mortgage lenders may view your ability to repay loans in a favourable light. Having a good credit score is crucial to getting a mortgage at a good rate. You may still be able to get a mortgage without good credit, but the structures and rates available to you might leave you paying more than you should.
Because of how closely it will be scrutinized, you should definitely look at your credit score and report before a lender does. An FTC study in 2013 showed that as many as 25 percent of consumers have an error on their credit report that could affect their score. Your credit report will help you identify areas of improvement. For instance, credit card utilisation rate the ratio of your credit card debt to available credit, this can be a major impact on your score. Something as simple as increasing your credit limit could improve your score before you apply for a mortgage.
What can you do?
Here are some of the things that you can do to get credit-ready before applying for a mortgage:
- Register to vote
You need to be registered on the electoral role so lenders can confirm your address. Doing this can also help the lender to trace your credit history. If you’re not registered, it will be difficult – and possibly unlikely – that the lender will have enough information to progress your application.
- Be selective about your credit applications
Too many rejected applications for credit can reflect badly on your mortgage application. This could suggest to the lender that you’re not creditworthy, or that you’re desperate – which could raise questions about your ability to make your mortgage repayments.
- Review your credit history and score
Check your borrowing history in advance. This allows you to dispute any inaccuracies so that lenders will receive correct information on your ability to repay debts. Your credit score, on the other hand, will give an indication of how creditworthy lenders may find you. If your score is low, you will want to see if there are any credit habits that you need to improve on before making the mortgage application.
- Reduce your debt-to-income ratio
This is the proportion of debt that you have in relation to the money that you make. The higher this number is, the more debt you have. Lenders typically prefer applicants with a lower ratio, as this means that you’re likely to have the funds to make your monthly mortgage repayments.
- Cut out any unnecessary borrowing
Try not to open new credit lines in the six months before applying for a mortgage. This could increase your debt-to-income ratio, which may reflect badly on your ability to repay any mortgage loans.
- Keep older credit accounts open
These can demonstrate to lenders that you’ve been able to make repayments over a sustained period of time. You may want to close inactive accounts, though, as they would show lenders that you have too much access to credit that you don’t need.
- Make sure to pay bills on time
Even if your credit history seems in order, don’t drop the ball and forget or ignore bills in the run-up to your application. Your borrowing records are ongoing, so any slip-ups before you apply for a mortgage would show the lender that you may not be able to meet your mortgage repayments.
- Remove out-of-date financial associations
Your financial associations could affect your ability to obtain credit. For example, you may have had a joint account with former housemates for paying bills, or you might have separated from a spouse. Their current and future borrowing habits could affect your credit applications, so ensure that you’ve removed these links from your record.
- Check on joint applicants
If you’re making a joint application for a mortgage, you should know that lenders will assess the creditworthiness of all of the people applying. It’s important check with the other person or people whom you are applying with to make sure that they also have their credit history in order.
Lenders use a range of factors to determine whether or not to give you a mortgage loan. There is no one simple solution for a successful application. However, the steps above could help boost your chances of obtaining a loan for purchasing property. If you want to know more about any of the information above please don’t hesitate to contact us on 0800 8620 840 or visit our website www.ptmortgagesltd.co.uk and fill out a contact form for a call back.