A common misconception I am presented with, is from those who have always saved rather than borrowed and never had a loan or credit card, believing they will have a perfect credit history. In fact, if you have never taken out credit, you may not have a credit file at all. For some it’s a shame, because they have always saved up for things, rather than take out a loan, which sounds like the sensible thing to do, yet it doesn’t help towards your credit history.
Not having a credit history at all can seriously affect your chances of obtaining a mortgage, especially when you have a relatively small deposit, which most first time buyers do. We typically suggest first time buyers save at least a 10% deposit so that they can get access to the mainstream mortgage rates and offers. However, this isn’t the only piece of the puzzle, and with just a 10% deposit, and no credit history, some lenders would not be able to accept an application.
One solution, is to keep saving until you have a bigger deposit, to give the lenders more security and relax their credit scoring systems. Having already saved for years, and feeling as if you’re on the brink of buying your first home, this isn’t a popular option.
The other solution is to improve your credit score and there’s no time like the present. It takes months and maybe even years to get to where you need to be, so don’t leave it until the last minute because it may end in disappointment.
The obvious things you can do, are such as, getting a credit card or taking out a small loan. Even if you pay off your credit card each month, or keep the money from your loan sat in a bank account, you are still improving your credit score. If you don’t like the idea of getting your own credit card, you can even be added to somebody else’s credit card and benefit from their use. If you do this, you need to make sure it is somebody you can trust to manage their finances responsibly, because as well as helping your credit by using the card right, they can damage your credit files by missing payments.
There are other less obvious things you can do too. Making sure you’re on the voters roll is one, this helps confirm your address and that you are living where you say you live. Another is not moving home excessively. People who move a lot are harder to track and credit companies prefer to see people who are settled so they know they are not running away from debts. Close any bank accounts or credit accounts that you are not going to use again. If you have lots of accounts open, which all have credit limits, you could have access to a considerable amount of money, and this represents a danger to mortgage lenders.
The two big experts in this area are Equifax and Experian. They are free to sign up to for a month and they will give you a credit report and a credit score which will give you a good indication of where you stand. They are also available to talk to on the phone, and can help you on how you can improve your chances of getting a mortgage,
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Jason Hinde DipPFS
6th August 2012
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