How do I improve my credit score? - Simmonds Mortgage Services

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How do I improve my credit score?

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    One of the things that can cause problems when you are applying for a mortgage is your credit score. If your credit score is poor, lenders may refuse to offer a mortgage loan or they may require additional deposit or a guarantor, or they may offer you a higher rate of interest.

    Let’s look at what your credit score is and how to improve credit score.

    What is a credit score?

    A credit score is a rating that credit checking agencies will assign to you based on your previous financial history. Each credit reference agency has a different way of calculating their credit score so you cannot make direct comparisons between different scores.

    The credit score takes into account how many different credit accounts you have including loans, credit cards, store cards and overdrafts. You will be able to see your payment history on each account and how much debt you still owe.

    Why is my credit score important?

    Lenders will use credit reference agencies such as Experian and Equifax to check a potential borrower’s credit history. They will be looking to see how much other credit you already have. They will also check your payment history to see if you are in arrears or make late payments.

    If your credit score is too low, a lender may not offer you a particular product or they may increase the interest rate that they will lend at. As a result, having a lower credit score can limit your options and make your mortgage more expensive.

    It’s a good idea to check your credit report at least 6-12 months before you intend to apply for a mortgage so you have time to improve your credit score in advance of the lender checking your history.

    What is a bad credit score in the UK?

    In the UK, there are three main credit rating agencies that lenders will check and lenders sometimes have their own way of calculating your credit score so it’s difficult to pinpoint the score you will need to aim for when applying for a mortgage.

    Experian calculates scores out of 999 and the following bands apply:

    720-880 – Fair
    881-960 – Good
    961+ – excellent.

    Equifax scores are between 300-850 and the following bands apply:

    300-579 – Poor
    580-669 – Fair
    670-739 – Good
    740-799 – Very Good
    800-850 – Excellent

    Transunion uses a range of 0-710 and the following bands apply:

    566-603 – Fair
    604-627 – Good
    628-710 – Excellent

    Remember, there is no magic number that you must achieve as each lender will set their own criteria so just focus on how to improve your credit score rather than hitting a particular score.

    You might be wondering which one of the credit reference agencies to use and it’s a good question. At Simmonds Mortgage Services, we recommend using Check My File which checks all the agencies at the same time, making the process easier and more comprehensive. You’ll get a detailed report on your credit health, including financial associations, payment history, court records and soft and hard searches by lenders.

    Simmonds Mortgage Services participates in several affiliate programs. This post contains affiliate links, so we may earn a small commission when you make a purchase through links on our site at no additional cost to you.

    How to improve credit scores

    There are several things you can do to improve your credit score to give yourself the best chance of getting your mortgage application accepted by your preferred lender.

    Running and understanding your report

    Sign up for one of the credit reporting agencies and check out your credit report. It should show you all the loans you currently have, the current outstanding balance, your payment history and your overall score. Some offer suggestions for how to improve your credit score.

    Checking for mistakes

    It’s not unusual for there to be errors on your credit report which, if not corrected, could reduce your credit score and prevent you from getting your mortgage approved. Check your report thoroughly and contact the credit agency to have any mistakes corrected as soon as possible.

    Personal details

    Make sure your personal details are correct and up-to-date, especially your address. Also be sure to register to vote at your current address as this can impact your credit score.

    Paying bills on time

    One of the most important factors in your credit score is your payment history. Make sure you prioritise loans, overdrafts and store cards and pay bills on time to improve your credit score.

    Avoid multiple credit applications

    Your credit score can be adversely impacted by multiple credit applications so if you are working on your credit score with a view to getting a mortgage in the next 12 months, avoid opening new credit card accounts or other loans if possible.

    Financial associations

    Check who you are associated with financially. If an ex-partner is still listed as connected to you, even if your finances are no longer connected, this could have a detrimental effect on your credit score. Speak to the credit agency to be de-linked.

    Pay off more than the minimum payment on credit cards

    Paying more than the minimum payment reduces your credit utilisation which you should aim to keep below 25% of the credit limit if possible to maintain a healthy credit score. By reducing your outstanding balance, you will pay less interest overall.

    Request an increase in your credit limit

    Although this may feel counterintuitive, having a larger credit limit can improve your credit score, as long as you don’t then go and spend up to the limit. A larger credit limit demonstrates that you are a lower risk for lenders as other lenders have granted a higher limit already and it will also reduce your overall credit utilisation which lenders like to see.

    For example, you have a credit card with a limit of 7,500 and an outstanding balance of 2,500, giving a credit utilisation of 33%. By increasing your credit limit to 10,000, the credit utilisation drops to 25% which could improve your credit score.

    Support with finding the best mortgage

    If you are unsure about how your credit score could affect your ability to get a mortgage, we’ll be happy to discuss it with you in a free no-obligation chat about your situation. Call 01184 693037 or email today.

    You may also be interested in: How the March Budget 2023 might affect the housing market

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    Andrew Simmonds

    Andrew Simmonds is the managing director at Simmonds Mortgage Services. He's been providing mortgage advice to home owners for many years.

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