We are all too well aware that getting on the first rung of the property ladder is tricky. Being able to offer a large deposit is often the hardest part and research is showing that first time buyers are getting older! If you are waiting to become a first time buyer there are a few things that you can do while you wait. Save up for a good deposit, try and get as much together as you can as every little penny will help. The larger the deposit, the lower the risk for the lender, the lowest rates are geared around lower loan-to-values (LTVs) so the more you put in, generally you will pay less in terms of mortgage payments.
If you are not aware of your current credit status or have never seen your credit report, this would be a good time to become familiar with what lenders are able to view about your financial history, after all this will determine whether they lend to you or not.
Check your credit report
You should periodically check your credit report through a company like Experian to ensure that all your details are correct. Mistakes can be made and no-one else is going to rectify these for you, as you cannot rely on lenders to always update the information. Sometimes accounts that you have closed can still show as being open or there is a simple clerical error or even the wrong address. While it may seem like a bothersome task, contacting lenders to ensure that they update any discrepancies will help you in the long run.
Check your financial partners
Your credit report will show any financial links you have to family or spouses, it will also document links to people in your past, perhaps if you had a joint mortgage or a joint account with an ex-partner. You should check your report and have any unwanted links broken as you do not know their current financial status and this could be having an adverse effect on you. Be mindful to also check the addresses stated on your report, with your lifestyle of serving in the Armed Forces and the many different postings you have, check your address details are correct and even if there are any that are no longer relevant to you personally.
Avoid the Pitfalls
Recreational online gambling is a type of activity that is recorded on your credit file and in order to be accepted for a mortgage, you must not have this type of activity shown on your credit file for a clear six months.
Payday loans are another credit source that may have an adverse effect on your credit score. It is debated that if you pay the loan back in full that it will not make a difference to your credit score; however lenders can see whether you have taken one out and the view of these payday loans is it shows desperation and someone with potential financial struggles looking for a quick fix. Often, even if you have a perfect record of paying off your debts, lenders will still refuse you, as some will discriminate against payday loans due to past experiences. Lenders base their scoring models on real customer data so if they have had a bad experience in the past, it is likely they will not be keen to lend to someone with the same circumstances.
Overall, it is a gamble to take out a payday loan and it is one probably best avoided.
Tidy up your bank statement
Lenders have become more robust in their investigations into your financial situation, including your spending habits. Most will request the last six months of bank statements and will examine these carefully. They will not only be looking at the usual monthly outgoings of rent, bills and other essentials but they will be looking at your extras such as eating out, clothes, holidays etc.
A list was published about what you could be asked in a mortgage interview about your spending habits, these are all things that a lender can see on your bank statement:
- Clothing and footwear
- Personal grooming
- Cleaning products
- Dry cleaning
- Dental care
- Eye care
- Eating out
- TV and Internet subscriptions
- Mobile phone
- Gym memberships
- Essential and non-essential travel
Calculating your credit score
Lenders are able to access your credit report to evaluate the personal history of your credit accounts. They use this information, in conjunction with the details you stated on your mortgage application, to give you a credit score. There is not a general rule that all lenders use to evaluate your credit score because they are not all looking for the same information, they all have their own unique formula to assess your credit history so you may receive a different credit score from different lenders.
Mortgage lenders will score you more favourably if you register to vote at your current address and close any unused accounts you may have.
If, in the past you have had an incident that you feel needs an explanation that may have affected your credit score, there is an option to add a 200 word "Notice of Correction" to your report.
Be a good borrower
Everything you do in relation to paying back the money you have borrowed is recorded on your report. If you make a late payment or miss a payment, lenders will be able to see this for six years and will mark you down for not being a reliable or responsible borrower.
Try not to go over your credit limit, not only will this be recorded but you could find yourself on a downward spiral. Make your repayments on time and try to pay more than the minimum amount each month on your credit card.
Doing some research into lenders is a valuable use of time. It is important not to apply to lots of lenders at the same time. Taking the time to find the right credit solution that suits your financial situation can go a long way to making the process quicker and easier.
If you apply to lots of lenders in a short period of time, this may be seen as you are in trouble and are trying to get out of a financial situation quickly and would not show you as a steady and dependable borrower. This activity could also raise concerns of possible fraud.