Mostly all mortgage underwriting carried out by a lender will be firstly guided by your credit profile. So the first step before approaching a broker or a mortgage lender directly is to apply for a full credit report.
You have many choices when applying for a credit report, there are three main suppliers in the UK.
Experian
Equifax
TransUnion (formerly Call credit)
Credit reports: what information is included?
Some of the information held in your credit report will come from banks, building societies and credit card companies you have borrowed from in the past, or that you currently owe money to. Other facts on your credit file may come from publicly available sources (such as the electoral register) or be supplied by utility companies.
What's included?
Your name, address and date of birth.
Whether you are on the electoral roll at your current address.
How much you currently owe lenders.
Any late payments on existing or past credit card or loan accounts.
Any missed payments on existing or past accounts.
Any debts registered as defaulted.
Any County Court Judgments (CCJs) made against you.
Whether your home has been repossessed or you have moved away owing money.
Whether you have been declared bankrupt or entered into an Individual Voluntary Arrangement (IVA).
What's not included?
The amount of money in your current account.
Your salary.
Savings accounts.
Student loans.
Criminal record.
Medical history.
Parking or driving fines.
Council tax arrears.
It is possible to dispute anything that you do not agree with on the credit report, if you really believe there is an error. For example, things such as incorrect name spelling, incorrect address details, missed payments that you don’t agree with, or maybe an incorrect default on the report, etc etc. You can write to the relevant agency to dispute the entry if it is disputing something that is negatively impacting your credit profile. You would need to send proof of why it’s wrong for your claim to be potentially successful. They will have 28 days from your request, to tell you if the entry has been removed or not, and your file will notated with the decision.
If the credit reference agency does not amend the file, it is possible to add what’s known as a 'notice of correction' (up to 200 words) to your file. This can be used to explain why you think a particular piece of information is wrong or to highlight any mitigating circumstances – for example, a sudden bereavement that may have caused you to miss a credit card or loan repayment.
There are many places you can get your credit report from all three agencies, and a fair few of them offer free access to the full report. For example https://www.moneysavingexpert.com/creditclub/ - from this link you can access the full credit report from Experian for free . So it’s worth doing some searching on Google to find one that offers a free service, or one that offers a free trial for the first month for the agency you need the report from.
What mortgage lenders are looking for?
It is a myth that, all lenders are just looking for a good score. Lending is mainly based on factors that should reflect in your score, but often do not.
1. Voter’s role information, do you show at the address on the report as per what is required as a minimum address declaration which is 3 years for most lenders.
2. Is the name and date of birth on the report matching the name and date of birth on your ID (passport, driving licence etc)? If it’s doesn’t match it could cause problems applying for the relevant mortgage unless it is corrected as outlined above.
3. The payment profiles showing how many payments late you may be on a credit item. If it shows all zeros then it means you haven’t missed any payments as far as the credit report is concerned. High Street lenders usually have a cut off for how many credit accounts you can have with missed payments, some lenders having a zero tolerance for any missed payments.
4. Defaults, usually once a credit account reaches 8 missed payments, it will show as a default. If you have a current default this could mean you are not acceptable to a vast amount of lenders, and may require you to approach a lender who accepts adverse credit. If a default has been paid off then it will show as paid off on the report, and will be looked on more favourably by the potential lender.
5. County court Judgments. This is when the credit item has reached default and no acceptable arrangement has been made with the credit item provider, and they have taken this matter to court. The court has then made a judgment that will appear on your file in the credit provider's favour. This will usually include the amount owed, plus fees for the court, and interest too. It will vastly reduce your choice of lenders if you have a county court judgement, and the more recent it is the harder it makes applications for a mortgage . Subprime lenders do have written criteria on what they will accept; this is when it would be advisable to approach a knowledgeable mortgage broker who will know what lender to try for you. It will make a difference if the county court judgement has been satisfied by paying it off, and the report will reflect the date that this has happened.
To be continued part 2 income multipliers used by mortgage lenders.
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