But how does this really effect your credit rating when it comes to applying for a mortgage?
The reality is that banks assess any loan application on a multitude of different criteria from the obvious ones of equity and income through to more obscure ones like time in your job or even your drinking habits! These vary from bank to bank and the last commentary we had suggested 47 different factors were considered by one bank and your credit history is just one of those things.
So what are the banks looking for?
There are some key things that the banks are looking for when it comes to your credit report and it may surprise some people that having had a lot of debt and repaying it is not high on their list of requirements. Below is a list of the most important things to consider
- Credit Defaults - Generally the bank want to see no credit defaults at all within the last 5 years. These defaults occur when you miss a series of payments and your outstanding loan/bill is sent to a collection agency
- Borrowing history - If you've been consistently borrowing small loans over a period of time then the bank may factor in to your loan application that you will be taking out new loans in the future which could hurt your chances of approval
- Types of inquiries on your credit history - Everyone needs a phone or power account and they'll check your credit for these. Maybe you've bought a car and some furniture and borrowed money, that's fine. But if you've been making regular applications with payday loans or questionable lenders then the bank will want to check your position in more detail
Something else some credit agencies will do is give you a "score" on your credit. These are scored up to 1000 and take in a number of factors. Generally above 500 is a very good score but a high or low score doesn't necessarily say anything about your chances of getting a home loan.
Want to know what your score is? Here is a link to a free website where you can check.
If you don't think your credit is very good but still want a mortgage then check out this link on the different options we can provide here.
We could go in to this in more detail but for 95% of people their credit won't effect their chances of buying a house. The key things to remember are...
- Present a good application to give you best chance of approval
- Ensure you make required payments on all loans and bills
- Try to avoid lots of loans and credit/store cards if you can
Get in touch with Adam, Claire and the team and we'll help you today!