Put as simply as possible, lenders use your credit score as a measure of how trustworthy you are – how likely it is that you will pay your mortgage on time month after month.
Because of this, your credit score plays a leading role in dictating whether or not you’ll be given a mortgage and, if you are, can also influence the rate of interest you are offered.
If your credit score is poor, you will struggle with the homebuying process. But don’t despair! Even if your score is currently, well, not great, there are steps you can take to boost it.
Register to vote
If you’re not already registered to vote, you should do so now, it only takes a couple of minutes. Being on the Electoral Roll goes a long way to helping improve your credit score for the simple reason that it makes it easy for lenders to check that you are who you say you are and that the details you’ve provided about yourself are accurate.
Get a credit card (and use it wisely)
Lenders want to know if you’re a trustworthy borrower. To find out, they will look at your previous borrowing behavior This means that, if you have never taken credit before, you are considered less trustworthy than someone who has taken credit and successfully paid it back as promised.
Therefore, you should get a credit card and use it with great restraint, instantly paying back anything you spend. For example, if you use it to pay your rent every month, and then instantly repay it with money from your current account, lenders will see that you are capable of borrowing money and paying it back.
This is a simple hack which can even help repair a terrible credit score.
Use rent to boost credit
Historically, the money you pay every month to your landlord has done nothing to boost your credit score. Even if you’ve paid your rent on time for your entire life, lenders never considered it a good measure of your reliability.
More recently, however, this has started to change. Companies, including Experian and CreditLadder, have developed new systems which enable your on-time rent payments to contribute towards your credit score.
Your landlord might need to agree to you using such a service, but there is rarely any extra cost to them for doing so.
Avoid Payday Loans
We would always recommend you avoid using any sort of payday lenders, the interest rates are a dangerous trap, but this recommendation becomes even stronger if you’re hoping to buy a home because some mortgage lenders have explicitly said they’ll reject anybody who has ever used a payday loan.
Even if a payday loan company tells you that they can help boost your credit score (they will tell you it’s like a credit card: if you make payments on time, your credit score benefits), don’t please do not do it!
Don’t apply for credit too often
Every time you apply for credit, whether it’s a bank loan or an in-store purchase, it leaves a residue on your credit score. If you are rejected, or you apply for credit too often, this residue builds up and lenders will grow suspicious of you.
It is also true, in a fairly twisted way, that the simple act of checking your credit score can affect it negatively, but there are now companies, including but not limited to ClearScore, who will let you check your score without affecting it. They will even offer advice on improving your score through practical, everyday actions.
Partners must act together
When you are financially linked to a partner or friend, if one of you has a negative credit score, it can also be detrimental to the other’s.
Being financially linked to someone might mean you have a shared bank account or credit card, or take shared responsibility for mortgage/loan repayments.
In such instances, lenders see you as a double act: unless you’re both proven to be reliable borrowers, neither of you are. This means you both need to act to boost your credit scores, or else unlink yourselves.
But before you go about ending your relationship, it’s worth emphasising that simply being married to someone does not make you financially linked.
Have you successfully boosted your credit score? What methods did you find most useful? Share your knowledge in the comments section below.
If you have any credit score related questions for our property expert, Russell Quirk, drop them in the comments section and he will be sure to get back to you.