Credit history and why it matters to mortgages

Credit history is something that affects every buyer. Being a first-time buyer and looking for a mortgage is already a challenge and sometimes a little bit daunting.

For the majority of people buying for the first time, having less time to save or not having equity in a house means you won’t have as big a deposit as older people who already own or rent a home.

But an area that can be a problem is credit! We are taught that maxing out your credit card or having a mountain of debt is a bad thing – and it is!

Yet, having no credit at all can make it just as difficult to secure a mortgage as those who’ve spent like there’s no tomorrow.

It seems an unintended consequence of keeping out of debt to save for your first home is that you can end up at a disadvantage.

It seems crazy that if you’re good at saving you have a tougher time securing a mortgage.

But there are reasons why lenders are as careful with those without a credit history as those with a bad one.

Why is it more difficult?

The reason why mortgage lenders aren’t as keen to give you money to buy a house is pretty simple: they have no record of how good you are at managing money.

If you have been careful and bought a car without a loan or stayed away from credit cards, you have not proved you can pay those debts back.

If you’ve been at home with your parents, you are less likely to have had to deal with household bills. Yes, you can save, but how do you pay bills?

Without that knowledge, a mortgage lender can’t decide if you’ll be on it when it comes to paying bills on time.

Having a phone contract can help, but you often need more than one line of credit to have created a history.

But it’s not impossible to find a mortgage without a detailed credit history. There are steps you can take.

What if I don’t have any credit history?

First of all, there are many mortgage lenders and each has their own criteria, so don’t panic. Not all mortgage lenders will immediately turn you down. There are things to check.

What should I do?

Credit history can come from:

• Credit cards
• UK bank accounts
• Being registered on the electoral roll
• Direct debit payments
• Utility bills
• Phone contracts

The easiest thing to do is to make sure you are registered on the electoral roll where you live now.

Many people who go to university or have been in a number of rental properties may have forgotten to tell the authorities. Apart from it being a criminal offence not to be on the roll, it also helps your credit rating!

The next step is to look at your credit score. If you can build credit history a few months before you apply for a mortgage it can help.

As you can see from the list above, you don’t have to apply for a credit card.

Most mortgage lenders are satisfied if you have two lines of credit. So if have a mobile phone contract, consider asking your housemates or parents about putting one of the utility bills in your name. Just remember to pay it on time!

Check your own credit score

If you’re completely unsure about your credit score, you can apply to a credit reporting company, such as Check My File, which offers a FREE 30-day trial. After the trial ends, the subscription is £14.99 but it can be cancelled at any time.

This gives you the same information as lenders and can help you see what your score is.

Usually, you can do this without affecting your credit history as it doesn’t record your search. Applying for loans or mortgages too often can lower your score due to too many searches.

This means a lender is much more cautious about loaning you money.

Mortgage lenders usually use one of three credit agencies, Equifax, Experian or Call Credit (now TransUnion) when checking your file as part of an application for a mortgage.

Check My File are the UK’s only multi-agency credit report that runs a report on all three named above. This means it gives you a clear picture of what’s going on when applying for a mortgage.

Don’t apply for lots of mortgages

As we have explained, if you have lots of searches on your history file, it can reduce your score. It may seem a bit unfair, but it can appear that other lenders have turned you down if there are lots of searches. This is because you’ve left a footprint on your credit files.

If you use mortgage comparison sites, then you may have unintentionally left too many search traces on your history.

This can mean you are turned down for your mortgage, and that can make it even more difficult to secure one because a lender will wonder why you were refused.

At The Mortgage Dog, we advise that you speak to a mortgage broker first. Brokers can search for mortgages without leaving footprints.

We are based in the North East of England and tend to have clients here. So, if you want a broker you can always search for “mortgage brokers near me” on search engines if you’re not in our area.

Knowing why a credit history is so important can help you put yourself in the best position possible to be offered a better mortgage deal for your first home.

Your home may be repossessed if you do not keep up repayments on your mortgage.
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