Unless you are in the fortunate position of having cash, you are going to need a mortgage to buy a property, and to get a mortgage you will need to have a good enough credit score.
But what if your credit record has been a disaster zone at different times in your life?
What if your record now is embarrassing and you are looking to obtain a mortgage in the not too distant future?
Do you have a chance of getting a mortgage to buy that home or investment property you so desperately want?
Fortunately, you do very much have a chance.
Lenders are ultimately forgiving, even if you typically need to pay for your past indiscretions by a higher rate of interest, higher charges and less favourable borrowing terms.
To give yourself the best chance of obtaining a good, competitively priced mortgage, you should take every available step to boost your credit score and keep it in good health.
If you have been particularly bad at handling credit cards, look at ways to clean up your credit card act.
Here are some of the top things you can do to impress potential lenders…
1. Never miss a payment
Late or missed loan or credit card payments can lower your credit score; set up direct debits or standing orders to minimise the risk of late or missed payments.
2. Check your accounts regularly
Even if you arrange for all your monthly payments to be made by direct debit or standing order, payments will fail if there is not enough money in your account to meet sums due. Therefore, check your accounts frequently.
Set up and actively manage a household budget to ensure that your income is sufficient to meet your outgoings every month.
3. Keep your borrowing to a minimum
While you need to show lenders that you can manage debt, borrowing too much may lead them to doubt your ability to borrow more without falling into difficulties.
Borrow only as much as you need when you need it and aim to pay off debts as quickly as possible.
GETTING A MORTGAGE
Is getting a mortgage easy? (looks at the ins and outs of getting a mortgage)
5 must know mortgage facts (key features property owners must know)
Raise funds by remortgaging (looks at the ins and outs of remortgaging)
4. Use a low percentage of available credit
If you have a credit card limit of say £3,000 and you owe £2,800, it will be apparent that you are having difficulties clearing your debt and that sort of situation will depress your credit score.
The important thing is to assess your ability to repay in advance of building up debt on your credit card.
5. Shift credit card debt to low or zero interest providers
Give yourself the chance to pay off credit card debt faster by transferring high interest cards to low or zero interest accounts.
6. Consolidate your debts
Where you have many unmanageable debts, particularly if they are on high interest rates, look to see if you can obtain an affordable debt consolidation loan, giving you the convenience of just one monthly payment and hopefully lower monthly payments overall.
7. Ensure you are on the electoral roll
Being on the electoral roll is a factor tending to increase your credit score.
GETTING ON THE PROPERTY LADDER
My first property (basic stuff first time buyers must know)
Property buyer newbie (the main steps when buying a property)
Buying a flat – what to consider (key things to consider when buying a flat)
8. Close unused credit or store cards
If you have credit or store cards which you are not using, close them to remove the level of credit available to you – boosting your credit score in the process.
9. Show that you can handle credit
If you have had horrendous debt problems in the past, it is tempting to do away with all credit cards and to operate on a cash basis only.
But if you are looking to get a mortgage in the future, lenders need to be satisfied that you can manage borrowing.
Therefore, look to build credit competence, confidence and points by at least using one credit card – taking care to achieve an immaculate payment record, ideally paying off the indebtedness in full each month.
10. Consider taking out a prepaid card
Another way to rebuild your credit reputation is by taking out a prepaid card. You top up the card with credit in advance of spending and pay a small monthly fee to the card company.
The card company will make an entry on your credit file showing that you have paid their fee (a debt) and that is likely to have a positive impact on your credit score.
11. Avoid showing financial desperation
If you need to borrow money, avoid showing that you are desperate by making several applications in quick succession – all of which may show up on your credit record.
Carefully plan and space out applications if possible.
Better still, make credit enquiries or applications where no record will be left on your credit file or you will be told of the outcome in advance of making the application.
12. Disassociate yourself from a financial partner
If you open a joint bank account or borrow money with someone such as a spouse or life partner, you become “financially linked” to them in terms of your credit score – they are treated as you financial partner.
If you split up and their credit record is bad or becomes bad that could adversely affect your score.
Where you split from a spouse or life partner, inform the credit reference agencies of your disassociation.
Have you taken any other steps to boost your credit score? Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com