Unless you have applied for a home loan before, there probably hasn’t been any reason for you to think about your credit score. However, your credit score will play a big part in your home loan application as many lenders will use it to assess the risk in lending money to each applicant.
Many lenders are now using credit scores alone to determine whether or not they will lend to you. Even if you have a substantial deposit and the income to service a loan, if your credit score is very low they are likely to decline you.
What affects my credit score?
There are various factors that can affect your credit score. Some of these include:
Previous Credit Applications
If you have applied for a loan through a bank before, this will go on your credit report. The more applications there are, the lower your credit score will get regardless of whether the application was approved or declined. The type of credit you have previously applied for also has different levels of risks. For example, if you have applied for a buy now pay later store finance provider, this may have a higher risk than a utility company credit application. Credit cards and personal loan applications may also carry a different level of risk to a home loan application.
The Age of Your Credit File
The date your credit report was created may impact your overall credit score. For example, a relatively new credit file may indicate a different level of risk than one that been established for a number of years.
Default information refers to overdue payments, serious credit infringements or clear outs may negatively impact your credit score.
The number of Credit Applications Made
Each time you apply for credit, whether it’s through a bank or another credit provider, an enquiry is added to your credit report. Even if you do not proceed with the applications, the enquiry will still stay on your credit report which can lower your overall credit score. This is why it’s important to keep credit applications to a minimum.
Improving your credit score
If you are thinking of applying for a home loan in the future and your credit score needs improving, there are ways you can improve it. It can often be hard to stay on top of multiple repayments and bills, so it’s a good idea to set up direct debits that are scheduled to come out the day after your usual payday. This will ensure your bills are paid on time, and in advance. If you have a monthly repayment but you are paid weekly, divide the monthly repayment by 4 weeks, and pay that amount when your pay goes in.
For further information or advice on credit scores, get in touch with the team at Preston Finance & Insurance. An obligation-free meeting can provide you with the tools to improve your budget and get you into your new home sooner.