The second in our series where Experian expert, Joe Green, answers your credit related questions, including credit cards.
I am going to start searching for my first home soon – I have heard I should get a credit card to help my credit rating, but I am not keen – can you advise please?
It’s great to see you are giving some attention to your credit report in the run up to applying for your mortgage, Alex. There are a number of factors to consider when applying for a mortgage, and taking time to review your credit report, to make sure it’s accurate and up to date, is a good place to start.
Your report will contain details of how well you have managed any credit accounts you have held over the last six years. These will include overdrafts, loans, credit cards and even mobile phone contracts and some utility bills.
To have confidence in lending such a significant amount to you, lenders will look to see that you have managed credit well in the past and repaid any money lent to you within the agreed time frame. If there isn’t much information in your credit history to support this, it may cause them concern.
Look at your credit report, make sure you are on the electoral roll and that all of your accounts are showing. The Experian Credit Score will help you interpret how your credit history is likely to be interpreted by a lender and, if it is low, what you can do to improve it as it could impact on not only getting approved, but getting the best mortgage rate.
If you have little or no previous credit history, a credit card can help your credit rating in the long run as it gives you the opportunity to build up a history of good payments on the card. So, if you did decide to take this option to help improve your credit rating, make sure you stay within the agreed credit limit and avoid missing payments. In the short term, when you do take out a new account, it can cause your Experian Credit Score to drop for a few months until you build up some positive repayment history, so it would be unwise to do this close to when you apply for a mortgage.
Separation and divorce
I have recently got a divorce and I am keen to find out how my ex-husband will affect my credit score?
Being in a personal relationship with someone, and even having the same surname, does not link up your credit reports, Andrea, so won’t affect your credit rating. Neither does living at the same address, which is a common myth. Credit reports only become linked if two people have actually applied for credit together, for example, a joint bank account or mortgage, or if they tell a lender or credit reference agency like Experian that they are financially connected.
Once a financial connection has been registered, any lender carrying out a credit check on either person is able to see financial information about the other too.
If you’re unsure whether you linked up your credit report with your ex-husband, start by getting a copy of your credit report. This will show you if a link is currently recorded. If you are shown as linked, but this is no longer correct, you can simply fill out a ‘financial disassociation’ form on our website, which will break the link. Be aware that you’ll need to do this with all three credit reference agencies.
I have a student loan, which I obviously haven’t paid off. Will this have any bearing on my credit rating and getting a mortgage?
That’s a great question Tom. Currently, unless your student loan is from before 2001 and in default, it will not be shown on your credit report and is unlikely to have any impact on you getting a mortgage.
However, you may be aware that last year a percentage of these loans were purchased by a private company. As a result, moves have been made to share this information with credit reference agencies like Experian, so they could be included on your credit report in the future. If you had one of these loans, as long as you are not in default, having your student loan registered on your credit report is likely to have a positive effect on how lenders view any future applications for credit.
Regardless of how your mortgage lender scores your credit history when you make your application, you should also now be preparing to meet the tougher mortgage affordability rules that all lenders must use. This means they will look very closely at your income and outgoings, now and in the future. They are likely to ask whether you have any unpaid student loans and will factor this information into their decision. As long as your future student loan payments don’t threaten to overstretch your finances, they should not scupper your chances of owning your own home.
To find out more about your credit rating, visit experian.co.uk/improve
If you have a question for Joe, please get in touch by emailing us at firstname.lastname@example.org and you may see your question answered in the next issue of First Time Buyer.