Income Protection
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6 May 2023
Income Protection
Do I need Income Protection?
6 May 2023

The importance of your credit report to getting your mortgage approved

by Richard Moring on 21 May 2023


In this article, we will delve into the importance of your credit report in obtaining a mortgage and highlight why maintaining a good credit score is crucial for getting your mortgage approved.

Lenders are likely to want to see evidence that you could still afford your mortgage if interest rates go up, and that you’re not relying on a rise in house prices to repay your loan.

They will undoubtedly also want to be satisfied that you have sufficient left over for your mortgage repayments once you’ve paid your essential bills such as your utilities, food and council tax.

Lenders have different past experiences with various types of applicants so they will take different factors into consideration when assessing an application.  The various lenders are likely to score an application differently, and the same lender may even score a mortgage application differently to e.g. a credit card application.

To make yourself a more attractive proposition to a mortgage lender, one thing that you can do is to ensure that your credit report is accurate, up-to-date, and reflects your present circumstances. If you do find anything that isn’t accurate, contact the relevant lender to get it corrected.

Most of us don’t like completing paperwork so will skim over the small print of the application to get it completed as quickly as possible. However, it pays to do your homework as taking care of the detail can be crucial.

Understanding Your Credit Report

Your credit report is a comprehensive record of your credit history, including your borrowing and repayment history. It includes information about your credit accounts, payment history, outstanding debts, and any bad credit associated with your financial history. There are three credit reference agencies in the UK (Experian, Equifax & TransUnion) who compile this information from various sources, such as banks, credit card companies, and lenders, to create a credit report.

Mortgage lenders review your credit report to assess your creditworthiness and determine the level of risk associated with lending you money. They use this information to evaluate your ability to manage debt and make timely repayments. A good credit report reflects responsible financial behaviour and increases your chances of securing a mortgage with a favourable interest rate.

Keeping an eye on your credit report may help you get your mortgage approved.  Here are a few things to watch out for:

Key Factors To Help You Get A Mortgage Approved
  • Credit Score: Your credit score is a numerical representation of your creditworthiness and is derived from the information in your credit report. Lenders use credit scores as a quick reference to evaluate your credit risk. A higher credit score demonstrates a lower risk profile and improves your chances of mortgage approval.
  • Pay on time, every time: Lenders look for proof that you’re a reliable and responsible borrower and late or missed repayments stay on your credit report for at least six years. It is best to remain within your agreed credit limits, always make your repayments on time, paying more than the minimum off your credit cards each month if you can.  It can take time to build up a good credit history so financial discipline is important.
  • Check out your credit report history: Checking your credit report may not be at the top of your list of recreational pastimes but it could end up saving you money. Your credit report shows your payment history and lists the credit you’ve had, including loans, mobile phone accounts and your mortgage.
  • Debt-to-Income Ratio: Lenders also consider your debt-to-income ratio (DTI) when assessing your mortgage application. This ratio compares your monthly debt obligations to your gross monthly income. A higher DTI indicates a higher level of financial stress, which may raise concerns for lenders. Maintaining a low DTI demonstrates your ability to manage debt effectively.
  • Credit Utilisation: Credit utilisation refers to the percentage of your available credit that you are currently using. Lenders review this factor to determine how responsibly you handle credit. Keeping your credit utilisation ratio low, ideally below 50%, demonstrates disciplined credit management and will impact your credit report in a positive way.
  • Ignore the details at your peril: Check that your credit report is up to date, that the information on it is accurate and reflects your current circumstances. Discrepancies, that need to be addressed, could include different ways of listing your address, or errors such as duplicate listing of accounts or closed accounts marked as open. If you do find anything that needs correcting, contact the relevant lender and ask for them to amend any incorrect information. Even small details like the way your name and address are recorded could have a significant impact.
  • Extra steps to remember: There are other simple steps you can take such as registering to vote at your current address, closing any unused accounts or adding a “notice of correction” (up to 200 words) explaining if special circumstances caused payments to be missed in the past. Credit scoring can also look at the average age of your accounts, awarding extra points for longstanding relationships, so try not to chop and change all of your accounts on a regular basis. Also, review financial links to other people and ask for any outdated links (e.g. to an ex-partner) to be broken.
  • Space out your credit applications: Avoid making too many credit applications close together, as this could be seen as a sign of financial stress.  Each application is recorded on your credit report and if lenders see lots in a short period, they could think that you’re desperate or suspect fraud.