As with all forms of credit, a mortgage lender will compare your application against certain criteria and make a decision whether to accept your application and what level of borrowing is available to you. There are a number of factors a lender will take into account when assessing your application, such as a affordability assessment, review of your credit file and their own internal ratings or score card.
Affordability Assessment
As part of the mortgage application a lender will look at your income, outgoings and calculate what’s affordable for you to pay each month and ultimately what level of borrowing will be available to you. Each lender has their own criteria regarding what they will accept as income such as regular overtime, commission, child benefit etc and what they will look at regarding your outgoings, for example child care costs, nursery fees, maintenance and service charge payments.
When you are considering your own monthly budget try and include realistic monthly outgoings, £100 per month for food may not be realistic for a family of four.
How to manage your credit score
There are a number of ways you can help improve your credit score
Take control of your credit score
Reduce the value of your outstanding debt and make sure all your commitments are paid on time
Lenders look at how you manage existing debt, if it is paid on time. Your propensity to manage revolving credit, are your credit cards near their limit?, are you using credit to cover shortfalls in your monthly budget. If you are at the top end of your available credit, this may also reduce your overall score.
Avoid applying for new credit just before making a mortgage application
Each time you apply for credit it can leave a footprint on your credit file, this may demonstrate to the lender that you are not living within your means. They may also look at any pending credit applications and factor these commitments into their affordability assessment.
Make sure you are on the electoral role
Being registered to vote has a big impact on your credit rating. Lenders commonly use the electoral role to verify your address history and identification.
Have a credit background
In addition to the electoral role, lenders like to see some form of credit history. This demonstrates your ability to handle credit and meet the monthly commitments. If you have no credit history, you can apply for a credit card and as long as you meet the minimum payment or pay in full each month, over time this may improve your credit score.
Close unused or inactive accounts
Lenders will also look at what credit you have available and it may become a factor if you have a really high amount of unused credit available to you.
Resolve any issues
If there are any issues on your credit file which can easily be resolved, proactively contact the credit provider, utility company or whoever has made the register on your credit file and look to resolve or remove the entry.
Obtain a copy of your credit report
There are a number of credit reports available and there are free reports available from a number of agencies. Most of these agencies offer a more comprehensive service for a monthly fee.
Checkmyfile provides access to credit reports from the four major credit reference agencies.
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Lenders internal ratings
While these are individual to each lender and generally not published, some factors which can influence a lenders internal score card include
Length of time in current employment and number of changes over the past few years
Number of different addresses over a short period
High level of debt compared to your income
Credit Score/History
The size of your deposit
Payday loans
These are just a few indicators and it is important to consider that each lender has different criteria and varying risk profiles and appetite.
Get in touch and we can give you a clear understanding of your credit file, affordability assessment, the different mortgage options available based on your personal circumstances and the steps you can take to put you in the best position for a mortgage application.
