Check your Credit File

Mortgage lenders will request a copy of your credit file from a Credit Reference Agency (CRA). All of the CRAs store information about your address and credit history. It is good practice to check your credit file annually. There are three main Credit Reference Agencies:

Experian: You can obtain a copy of your credit file for free, so long as you cancel within 30 days: www.creditexpert.co.uk

After 30 days, you pay £14.99 a month for unlimited access to your report, with automatic text and email alerts any time your credit file changes. As such, if there is any suspicious activity (identity theft), you will be the first to know and hopefully take action immediately to stop further fraudulent activity.

Equifax: You can obtain a copy of your credit file for free, so long as you cancel within 30 days. Thereafter, the monthly fee is £14.95.

Call Credit: Call Credit gives you unlimited access to your credit file for free: www.noodle.co.uk

Lenders will carry out a credit check with one of the CRAs to confirm your address history and credit status. Although CRAs run their own credit rating/scoring system, it is completely different from the lender’s individual credit scoring systems. Undoubtedly, obtaining a high score with a CRA agency could be an indication that you represent a good or “safe” borrower; however, when you are applying for a mortgage, the most important credit rating/scoring system you need to concern yourself with is the lender’s.

The CRA scoring system is irrelevant and there are anomalies with the system. I have seen clients with 998 credit scores but they have mortgage arrears. Yes, it’s possible that a CRA could indicate you’re an excellent borrower and you obtain a high credit rating, but when the lender conducts their own checks, it’s an outright credit score fail. And vice versa, even if your CRA credit score says you have a poor credit rating— it’s not the be all and end all, as lenders operate completely different systems and will score you differently. And in some cases, you can proceed with a lender that does not use a credit scoring system but a very sophisticated traditional basic underwriting system called the human brain. As it’s free to get access to your files, request copies from each of the three CRAs and check that the information they store on you is accurate. Ask them to amend any errors and update your file accordingly.

Unfortunately, it can be a rather tortuous affair to get your file amended, as confirmed by the following Channel 4 Dispatches documentary: Secrets of your credit rating.

In summary, the CRA’s are obligated to hold accurate information about your credit history, but the onus is on you to check that it’s accurate. Experian has a Rapid Update system that enables information to be updated within 48 hours, as opposed to the normal once a month system that is generally assumed.

Your credit file is your financial CV. When you apply for job, the first thing your interviewer will want to see is a copy of your CV. When you apply for a mortgage, the first document the lender wants to see is a copy of your financial CV, aka your credit file.

Things to watch out for: Make sure your name is on the electoral register/roll. Even if you do not vote! (Yes, you do get clients that say they have never voted and will never vote; I understand.) You don’t have to vote; just make sure your name is on the electoral register. Have at least one credit agreement showing on your file. This could be a store/credit card with a £200 credit limit.

Make your regular monthly payments, pay it off, and reuse it in order to build up your credit profile and demonstrate to potential lenders that you can handle credit responsibly. Maximum borrowing on any card should not exceed 40%.

Avoid making numerous applications to lenders as it could potentially lower your credit score. By all means, shop around, but there is no need to carry out any credit checks until you have decided on your choice of lender.

If you have any minor adverse showing on your credit file, e.g., a £25 mobile phone default, then ensure that this is paid off and showing as satisfied before you apply for a mortgage. If you are disputing the default, then make sure you have a paper trail or evidence that the default is currently “under dispute”. Unfortunately, all adverse credit stays on your credit file for six years. Naturally, if you are a few months from the item dropping off, then time your application accordingly. If a creditor has agreed to remove incorrect adverse data, make sure you request a copy of your file to check that it’s been removed.

Make it a habit to check your credit file at least once a year.

County Court Judgments (CCJs): There are a few lenders that will consider lending to clients with CCJs. CCJs can only be removed if the CCJ is paid within a month of the debt being registered. The National Debt Line provides further information on how to set aside a judgment a CCJ. Getting a mortgage with adverse credit is covered extensively in the complex circumstances section.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

The Financial Conduct Authority does not regulate most types of buy to let mortgages, bridging loans, development loans and commercial loans.