Credit history: Alisha Pandya had her application for a home loan rejected
Young house-hunters hitting the estate agents this Easter are being warned to check their credit file before they fall in love with their first home – to avoid a mortgage blow.
Spring is the busiest time of the year for buyers making offers on a first property. But a dream purchase can quickly turn sour if a buyer is rejected for a home loan due to a poor credit rating.
Lenders rely on these reports as part of their decision and if they are not squeaky clean, the computer may well say ‘no’.
Borrowers do not have to have had problems with credit, such as missed repayments or unpaid bills, to be rejected for a mortgage.
Simple omissions such as failing to sign on to the electoral roll with the local council (this enables an individual to vote and lenders use it to check an applicant’s full name and address) and not having had a credit card or loan in the past, can lead to a poor score. This is because would-be borrowers cannot prove to lenders that they can handle credit well and meet repayments on time.
First-time buyers concerned that a lack of credit history might trip up their mortgage application need to act sooner rather than later to build up a record before applying (see tips below).
James Jones is head of consumer affairs at credit reference agency Experian, which has been running an advertising campaign fronted by comedian Marcus Brigstocke.
Jones says while most young people check their online image on social media, regularly posting and updating profiles on Facebook, Instagram and Twitter, only one in three people under 25 has checked their online financial profile with a credit reference agency.
Steps to spring clean your credit record
- Get on the electoral roll. This helps to identify you.
- Build a strong credit score. Always make repayments on time (direct debits can help). Consider specialist credit cards aimed at those with no previous credit history.
- Limit credit applications. If rejected for a loan, find out why – and take appropriate action before applying again.
- Review financial status. Where possible repay part or all of current loans or cards and cancel unused cards. Some lenders have concerns about personal contract plans on car purchases and high interest payday loans.
- Check credit report regularly. This is initially a free service with Callcredit, Experian and Equifax. But charges may apply if you fail to cancel an initial free trial. Ensure the data held about you is correct and take steps to change errors. Identity theft – where fraudsters apply for credit in another person’s name – can wreak havoc with a credit file.
Jones says: ‘Many young people are in the dark when it comes to their financial data, including how to check, update or correct any errors. Problems arise when these people are declined credit but do not understand why.’
Lisa Hardstaff, credit expert at another leading agency Equifax, says errors on a personal credit file are rare but they can lead to a mortgage rejection, especially if fraudsters have stolen someone’s identity and taken out other loans in an applicant’s name.
Give yourself time to check everything is correct with more than one credit reference agency as they may hold different information.
Over-18s can apply online for an initial free copy of their credit record from the three main agencies Callcredit, Experian and Equifax. Be wary of signing up for costly subscriptions.
Hardstaff says: ‘Request any errors be changed where necessary before applying for a mortgage. You must contact the lender who has passed the incorrect information to a credit agency or you can raise a dispute with the agency who can act on your behalf.’
Alisha Pandya found out the hard way about the importance of checking your credit record.
The 24-year-old, who lives with boyfriend Adam, 31, who owns a male grooming company, made an offer on a flat in Reading, Berkshire, last year but when it came to applying for a mortgage the couple were rejected. Alisha, a communications officer who lives in Surbiton, Surrey, says: ‘I had not built up a strong enough credit history.
‘I had never had a credit card or personal loan because I had never needed one. Although I know I can budget well and we could afford the mortgage, the lender could not make this judgment about me.’
Alisha had never looked at her credit record but after the mortgage knockback she started to find out more.
She has now taken out a credit card, making sure she makes regular repayments, and is slowly building up a credit history and improving her score.
Alisha reviews her profile each month. She and Adam hope her efforts will mean they can start house-hunting again soon.
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