We often get asked questions like ‘what credit score do I need to get a mortgage’? We explore some of the issues a recent mortgage application process has uncovered in relation to credit scores and reports. Below is based on first hand experience from one of the Credit Geeks team.
It is important to understand up front, that an excellent credit score is not an indication of mortgage application success but it does help (versus having a poor one). In reality being successful with a mortgage application is about meeting the lender’s/bank’s criteria, in combination with your credit history.
Check your credit reports in advance (6 months plus)
- In advance of the mortgage application, this involved in advance of 6 months of checking credit reports, with focus being on those from Experian and Equifax, to ensure the contents was is in check.
- As credit scores are no real indicator of success, focus has been on the actual contents of the credit reports, to ensure no errors (especially a mixed credit report as we reported on earlier this month), or anything, which would adversely affect the application.
- Make sure to check the credit report of any joint applicants like spouses, when a mortgage is a joint application, they will be considered a financial associate, and their credit history will be reviewed in the process.
- Remember you can realistically make up to 2-3 mortgage applications in a short period of time. Every time you apply for a mortgage, you will be credit checked, which leaves a footprint/search on your credit file. Too many searches in a short period of time, puts lenders off, as makes you either look desperate or possible identity fraud scenario
Speak to lenders before making any applications
Looking at the market, it was decided to focus on 5-year fix rates. This is because rates are at an all time low, and with recent positive economic data, interest rates may not be low for much longer. We spoke to Leeds Building Society, West Brom, Post Office and looked at deals via the brokers also.
Lenders have different criteria, so it is well worth a quick ring round, this must be done before any applications, for example:
- Check out these lending criteria from the post office as an example, which are very detailed, and suggests those who have missed no more than two consecutive payments on credit cards, will be considered.
- Most lenders accept 50% of any commission earned, which they prefer to see being paid monthly.
- Lenders have very different salary multiples, which means how much overall they will lend you related to your salary, for example Leeds Building Society offered 3.5x, whereas the Post Office offered 4.25x.
- We tried to repeatedly call the West Brom Building Society, as they have one of the best 5-year fix rate deals, but it took them 3 days and 3 phone calls to even speak to a mortgage advisor.
- Check the details ask them what the early repayment penalty is, can you port the mortgage if you move, is your solicitor on their approved list etc.
- A mortgage application will lead to a credit check.
Do a ring round of lenders, and ask them how they would consider your specific situation (employed, self employed, two earners vs one etc), before doing a credit check, you can provide your income, and they can give you an estimate of what they will lend. Ask as many questions as you can and remember the banks with the best deals, are not always worth using, as they are often inundated with applications, which causes delays to processing. They then cherry pick the best applicants, and potentially reject the rest.