The Importance of The Credit Report to A Mortgage
Posted on 31st August 2022 at 18:22
Credit Report Versus Credit Score!
“Of course I can get a mortgage! My credit score is 110%"
Maybe you have a great credit score. But your credit score is not your credit report. It is perfectly possible to have a good or even a great credit score, whilst having a damaged credit report. When it comes to a mortgage application unknown damage can sometimes have negative effect and the result may be a “decline. A mortgage application can sometimes be declined due to damage which has not been taken into account.
What Information Does Your Credit Report Contain?
In short - LOADS! It lists every form credit that you have or have had during the last 6 years from your mobile phone contract to your mortgage. It lists the information month by month, including the total debt outstanding, the monthly repayment and exactly how much you have paid EVERY month. So, if there have been payments that have NOT been made this is detailed on the report as well, along with a score of 0 up to 8. (Zero being no issue, 8 being pretty awful). Here is an example off credit file with a tiny bad debt which might be enough for Lender to decline a mortgage application!The Credit Report is the Bible Of the Mortgage Underwriter
As soon as you make a mortgage application the mortgage lender interrogates the credit report files. Before anything else a bank or building society will review all of the data held in an individual’s credit report before deciding to give a mortgage decision in principle or not. The information on the file and compares the answer to whatever criteria they for an acceptable financial picture of a mortgage client.
The Information provided by credit companies is held on a single file about a person. Every month your bank, your credit card company, the second credit card company, the loan company, the HP company the utility company, all of them return a monthly report on outstanding debt and the payment received or not received from you. This information is retained for 6 years and is listed month by month, debt by debt, and payment by payments made – or missed payment. So, as you can see, the information in your credit report is the Gospel to your bank or building society when you make a mortgage application.
Of course, the data doesn't stop there. Your credit report also lists all of your financial associations with other people, your registered address is and listing on the electoral roll as well as whether someone has been made bankrupt or has a county court judgement
Creditors Can (and do) Get It Wrong.
Creditors frequently do register incorrect data on your account. Incorrect information on your credit report is easily corrected, but it has the same effect on a mortgage application as correct information. Lenders treat the credit report like the Bible. If it is written then it is Gospel. Getting incorrect information changed is simple, but it takes up valuable time which is bad news if you want to get a mortgage sorted out quickly. Mortgage lenders cannot tell the difference between a mistaken entry and correct entry, so it's up to you to find out what is on your report!
Common Issues That Can Be Addressed
Changing credit provider for mobile phones where phone companies incorrectly report about closing an account – Always obtain written confirmation about a closed account. (see below)
If you have moved home recently you will have probably tried to close your utility accounts. if possible always obtain written confirmation about a closed account
If incorrect information is held about you on your credit report then it can be changed. The first step is to know what is in the credit report. For this reason as a mortgage broker, we always request sight of the full credit report. If there is incorrect information on your report then you need to approach the credit company and request that they make the necessary alteration.
Remember, It takes time to amend a credit report. It can take up to 6 weeks for amendments to register on the public credit report.
If there are issues that cannot be amended then a professional mortgage broker can steer a mortgage application to the most suitable lender whose criteria fit the issues.
Lastly on this point, it takes six years for entries to work their way through your credit report. This means that the missed payment you make today will only be removed from your credit reports in six year’s time.
Credit File Do’s and Don’ts
Register on the voter’s roll
Keep all bank and credit accounts up to date with address changes
DON’T keep multiple credit cards. It is a fallacy that the more credit cards you have the better it looks to a lender. If someone has too much available credit it can REDUCE the level of lending on a mortgage
If there is damage on your credit report it is essential to avoid making a mortgage application without checking the lender criteria. Every lender is a little different and in some cases there are enormous differences between lender’s criteria. This knowledge can mean the difference between getting a mortgage accepted and declined.
Moving Home and Making A Mortgage Application
A few weeks ago my client came to me and told me that she had just been declined on a Buy To Let application. The previous year she had moved home with a new residential mortgage and taken the opportunity to change her mobile phone provider at the same time. She moved home, closed the old phone contract and thought no more of it. Like so many, many others, Vodaphone made another charge on the account after my client had moved home. Needless to say, the reminders never reached her and there was a default of £17 on her credit report. Her mortgage application was automatically declined as a result.
Never assume that you have closed your mobile phone account until you have a statement with a £ZERO balance due.
Pay Day Loans and Mortgages (don't do it!)
For anyone contemplating setting up home with mortgage the advice has to be do not take out a payday loan. All lenders view the presence of a payday loan as a sign that someone is not capable of managing their everyday finances and will decline an application unless the payday loan has been paid off a long time ago.
How Can A Mortgage Broker Help With A Damaged Credit File?
Mortgage advisors come into their own when it comes to working with clients who have damaged credit. This is because the criteria applied by lenders varies hugely from one lender to another. Some lenders will automatically decline a case with any damage on the file, whereas others might accept the same case without any issue. In some serious cases where the damage is profound, (recent and high value) it may be necessary to approach a specialist lender. This may cost more, but it could meant the difference in being able to buy a home or not.
An experienced mortgage adviser will act as a guide to the most suitable mortgage and mortgage lender. You may have to pay a fee, but the result will be worth every penny.
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