When it comes to buying your ideal home, a good credit score could be the difference between achieving your dreams and having the door slammed shut on them.
As a result, understanding how to improve your credit score is vital, so let’s look at how you can achieve this.
If you’re looking for your next home, contact your local Whitegates branch for expert advice and guidance.
Why your credit score is so important
Your credit score is crucial when applying for a mortgage as it gives lenders an indication of your creditworthiness and therefore directly influences your ability to secure a mortgage.
Having a good credit score can lead to better mortgage options with lower interest rates and more favourable terms. Additionally, your credit score may affect the amount you’re approved to borrow and the size of your mortgage payment.
Related: Porting a mortgage explained
How your credit score is calculated
Your credit score is calculated by credit reference agencies using a variety of factors including:
- Payment history
- Outstanding debts
- Length of credit history
- Types of credit accounts
- Credit applications
- Bankruptcy filings
Each credit reference agency may use slightly different algorithms to generate your credit score, resulting in variations between scores from different agencies.
How to improve your credit score
There are several things you can do to increase your credit score and improve your chances of being accepted by lenders.
Know where you stand
Firstly, it is crucial to fully understand credit score so that you can identify areas for improvement. This knowledge enables you to make targeted actions that will positively impact your score.
Understanding your credit rating also allows you to set realistic goals and track your progress over time, leading to better decision-making moving forward.
Related: Top tips for planning your finances before you move
Prove your creditworthiness
Having a credit card allows you to establish a credit history, so it’s a good idea to take a small amount of credit if you haven’t already.
If you don’t borrow money, lenders cannot judge how likely you are to keep up with mortgage repayments and are less likely to give you favourable terms.
Pay your bills on time
Payment history is one of the most important aspects in determining your credit score, therefore paying bills on time is essential.
Making credit card payments on time proves to lenders that you can manage credit responsibly, while missing even one payment could negatively impact your credit score.
Stay within your limits
Staying within your credit limits demonstrates responsible financial behaviour to lenders, showing that you can manage credit responsibly without maxing out your available credit.
Using a lower percentage of your available credit (also known as a low credit utilisation ratio) positively impacts your score and helps you avoid accumulating excessive debt.
Pay more than the minimum
Paying more than the minimum required payment on your credit accounts shows that you’re managing your debt effectively and can be relied upon to repay your mortgage on time. This strengthens your creditworthiness and can result in a higher credit score over time while also improving your credit utilisation ratio.
Limit applications
If you make several credit applications, lenders could assume you’re struggling financially which is likely to impact your mortgage application. Each application results in the lender performing a ‘hard’ credit check, which leaves a mark on your credit report.
If you simply want to compare rates, asking your lender to perform a ‘quotation search’ instead of a ‘credit application search’ prevents it from appearing on your credit report.
Related: Buying a property on your own: how to make it possible
Check your credit report
It’s important to check your credit report monthly to make sure all the information is correct, as errors can lead to inaccuracies in your credit score. Reviewing your credit report also allows you to spot any suspicious activity which could indicate identity theft or fraud.
If you find any mistakes, it’s vital to get them rectified immediately to mitigate the negative impact they have on your credit score. You can do this by contacting the credit reference agency that provided the incorrect report.
Register to vote
When you register to vote, your information is added to the electoral roll, which serves as a key verification tool for credit reference agencies. This provides lenders with accurate information that can be used to verify your identity, facilitate credit checks, and improve the overall accuracy of your credit score.
The benefits of using a mortgage advisor
Our partners at Embrace Financial Services provide personalised guidance tailored to your financial situation.
They can provide you with the assurance of knowing your borrowing capacity in as little as 30 seconds. They can also help you identify mortgage products that align with your individual circumstances to increase the chances of you receiving favourable terms and interest rates.
For more advice, contact your local Whitegates branch today.
