Credit For A Mortgage

For most of us, buying a home means applying for a mortgage and success or failure could depend on how you've managed your financial history.

Your personal credit report details your financial history. The credit report includes a wide range of information on your credit behaviour, from your credit cards, store cards and loans to your repayment record, previous mortgages and details of overdrafts. Your credit report also confirms whether or not your name is on the electoral roll at your current address and the number of times your credit report has been searched.

Credit reference agencies such as Callcredit, Experian and Equifax hold this data on more than 40 million people and 24 million households. So, if you're over the age of 18 it's likely that they hold credit information on you. If you are applying for a mortgage then your credit report is going to be checked. Check your credit report before the mortgage providers do to ensure that there are no surprises with your mortgage application.

What Do Mortgage Providers Look For?

When deciding whether or not to give you a mortgage, the mortgage lenders look first at the details on your application form. If you don't fit their criteria for being offered a loan, they are unlikely to search your credit report. Typical deal-breakers include being too young, insufficient current earnings or too short a self-employment history.

They may then look at any previous relationship that you may have had with them and how you conducted it.

How Does My Credit Report Affect My Mortgage Application?

The next step is to search your personal credit report. A lender may use this credit information to help create your credit score, by comparing you to past customers with similar credit characteristics. The result is a numerical assessment of how good a credit risk you appear to be. Normally, the higher your rating, the more likely the company is to lend you the money you want (and the lower the cost of borrowing is to you).

Getting a copy of your report before you apply for a mortgage will allow you to check that the information it contains is accurate and up-to-date.

For example, if you had a court judgment against you but have paid the debt, you should make sure your credit record reflects this. Equally, if you paid off the debt within one month, the judgment can be removed from your credit report. Or perhaps the fact that you registered to vote has been missed and your name has not been confirmed on the electoral roll. In this case, you should let the credit reference agencies know. They will investigate and amend their records accordingly. Click here for full details on how to make changes to your personal credit report.

I've Missed Payments Before. What Is The Affect On My Mortgage Application?

If you've missed payments on credit accounts before, all is not necessarily lost. The impact that missed payment(s) have on your ability to get a mortgage depends on a number of factors:

• Number of Missed Payments: If you frequently miss payments on credit accounts then mortgage providers are less likely to want to lend to you as you pose a higher risk to them. If you've simply been a little late with payment on one or two occasions over the last 6 years then the effect on your credit report (and mortgage application) is lessened - many people will be late with a payment over such a period of time.

• Number of Credit Accounts: Having other credit accounts in place (e.g. cards, loans, an existing mortgage, phone, insurance, utilities etc.) can be useful to you. If your other credit accounts are being reported on your credit report showing that you have paid on time, then the impact of a missed payment on is reduced. On the other hand, if all of your credit accounts show late payments you are demonstrating that you are a higher credit risk to mortgage lenders.

• Length of Delay: When lenders look at your credit report they are able to see the length of time that it takes for you to miss a payment (reported in monthly blocks). The longer you delay making payment on your credit accounts, the worse the impact will be on your ability to get a mortgage and buy a house. Therefore, If you do miss a payment, you should ensure that you quickly rectify the problem and pay off what you owe.

We highly recommend that you check your credit report so you can understand what impact missed payments are likely to have on your ability to be able to get a mortgage and buy a house.

Failed Mortgage Applications?

At present, it is estimated that lenders turn down roughly one-third of all mortgage applicants (this figure seems to be on the rise, with the increasingly tight credit markets). If you are one of the unlucky ones, you should be given an explanation. If not, ask for some guidance. For example, you may not be offering enough deposit or appear to be carrying too much debt from other sources. It may be that your credit report rang alarm bells, perhaps because you had missed some payments on a previous loan.

You can always appeal against the decision and ask the lender to look at your application again. This may give you chance to provide further information on your credit history. For example, your poor credit record may stem from a one-off event that no longer applies, such as a serious illness or enforced redundancy.

Finally, there’s nothing to prevent you applying for a mortgage from another company. Different lenders may take a different view. But be careful how many credit applications you make in the short term.

If you allow a significant number of companies to search your credit report, you could damage your credit rating as it could be interpreted to mean that you are desperate for money or possibly that someone is trying to commit fraud. If you know that you have been refused credit because of your credit report, it is always sensible to credit check yourself before making any further applications.

To help avoid any nasty surprises, each of the main credit reference agencies offer credit monitoring services which provide you with an update on your personal credit report every time new information is added to it. Use the links to the right of this page to sign up for credit monitoring services from Equifax and Experian.

Order Equifax Identity Watch Protection

Want to order a personal credit report service: Use the links below to place your order with Experian & Equifax:

Experian Credit Report CreditExpert Credit Monitoring From Experian. Order Experian Credit Monitoring!

Equifax Credit Report Avoid nasty surprises with your mortgage application. Signup with Equifax and use Credit Watch Gold Monitoring: Order Equifax Credit Monitoring!

The Credit Agency UK LEARN more about Credit Reports, the way lenders use them and how to Manage Your Credit Report: Personal Credit Report Articles !