The third in our series where Experian expert, Joe Green, answers your credit-related questions.
Back on track
Some years ago, I got into some financial problems so my credit was very poor. Everything is sorted now and I am financially stable. I am hoping to buy my first home soon, but I am concerned that this will hang over me forever, or does my credit report change over the years?
It’s great that you’ve managed to get back on track Gemma and you are right to start considering your credit rating now before you make your mortgage application. The good news is that it is your most recent credit management that counts most.
Your credit report only looks back six years after which most information will drop off and no longer be visible to lenders doing a credit check. The exceptions are unsettled accounts such as an IVA, CCJ or a Bankruptcy. These need to be discharged or marked as settled before they will fall off your credit report. Do keep in mind, however, that some lenders may still ask you if you’ve been bankrupt in the past, so be aware this might come into play. If your financial troubles were due to circumstances outside of your control, for example illness or redundancy, then you might also consider posting a note on your credit report explaining any mitigating circumstances and the lender may take it into consideration.
It’s best to check your credit report to see exactly what has been recorded, and ask the experts for help now to see if there are any positive steps you can take to make sure your credit report is painting the best possible picture of your financial situation before you make your mortgage application.
I am going to try and get my first mortgage soon but I would like to know if it is standard practice for all mortgage lenders to check your credit rating? I have never checked it in the past and I am worried that I might have forgotten something and it will show up. I don’t foresee any problems but, if there is something, will they still lend?
It’s highly likely these days that mortgage lenders will check your credit report and use it as part of their overall assessment of your application, as they will be looking for evidence that you have managed credit well in the past and can afford to meet any repayments.
Check your own credit report first to make sure it’s accurate and up to date, as you don’t want any unexpected surprises when applying for your mortgage. You can get your Statutory Report for just £2 on Experian.co.uk and that will show you the information that is registered about you. Taking the time now to understand, manage and improve the picture your credit report paints of your financial situation could not only impact getting accepted for a mortgage, but also the rates you are likely to pay. It could save you a lot of money in the long term.
You will also need to consider mortgage affordability rules, which will take into account not only how much you are earning, but also how much you are spending and whether you actually have the money to make your monthly repayments. Lenders are also keen to know whether you’ll be able to afford it should interest rates go up, or if your circumstances change.
Good and poor credit
I am a first time buyer and I have found an older property that I am very interested in. I have a very good credit rating, but I have found out that the current owners have a poor credit history. Will their credit history affect me?
This is a general misconception we come across on a regular basis, Nick, but as far as your credit rating is concerned, you have no need to worry. Credit checks are only carried out on people not addresses. The fact that the current owners may have a poor credit history won’t have any negative impact on your chances of getting a mortgage at all.
However, it is worth pointing out that, if you have ever made a joint financial application with another person, for example, if you have a joint current or credit account with someone, this can create a link – known as a financial association – between you both. This means that any lender carrying out a credit check on you may be able to review the other person’s credit report also, as a financial link implies that your financial wellbeing is inter-reliant. It’s worth checking with the credit reference agencies if you think you might have an old irrelevant financial association, so that they can help you break the link and protect your credit worthiness.
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 email@example.com and you may see your question answered in a future article.