If you have a poor credit rating, then you might struggle to get a mortgage. However, there are steps that you can take to improve your rating, thus helping you to move forwards with your mortgage application.
Here are nine steps you can take towards an improved credit rating:
Before you apply for any type of credit, check your credit report. Make sure that all the information on the report is accurate, and get it removed (by contacting the lender) if it isn't.
This will improve your chances of being accepted for credit. The reason for this is that prospective lenders and credit reference agencies will use it to check your identity and address. Ensure your credit record shows correct address details. Living at the same address, being employed in the same job (with the same employer) and having the same bank account for a reasonable period of time will also help.
Lenders might consider the amount of credit you have access to, as well as the amount of debt you owe. Close all credit accounts such as credit cards, store cards, mobile contracts and accounts that you don't use or need anymore.
Missed and late payments can stay on your credit file for up to six years. If you've made a late payment due to circumstances beyond your control (i.e. your direct debit wasn't set up in time), so long as you made the payment promptly, talk to your credit provider and see if you can get this black mark removed. This also applies to late payments on utility bills like gas or electricity.
Pay off more than just the minimum payment. This signifies good behaviour to a prospective lender. To be seen as managing your debt well, ensure that you're making headway into repaying what you've borrowed.
If you've never had credit before, it's difficult for a lender to assess you. Consider taking out a credit building credit card, making a couple of purchases on it each month and then repaying the balance in full at the end with a direct debit to build a good credit history. This will show that you can responsibly manage credit.
Credit builder prepaid cards can help you improve your credit rating. They charge a monthly fee (about £5), which you'll need to keep paying for 12 months, but at the end they will add an entry to your credit file that you have successfully repaid a debt. A prepaid card doesn't require a credit reference as you don't borrow on it.
Credit reference agencies don't get told if you are rejected for credit, but a note is made every time a credit search is made by a lender. Don't use a scatter gun approach to applying for credit. The more credit searches carried out in a short space of time, the less likely you are to be accepted for credit. Space out credit applications and, if possible, try to find out whether you're likely to be accepted before applying. Do not apply for products unless you really need them.