In the past, an applicant needing a mortgage would go & see the Bank or Building Society Manager dressed in their Sunday best and explain why they were suitable to borrow ‘x’ thousand pounds on a mortgage. They would have typically had to prove a propensity to save the required deposit over a period of time and also paid in a regular credit into the Bank or Building Society account, obviously having exemplary conduct on their account to prove that they had the ability to pay a mortgage. This was an early form of credit scoring……….
Times have moved on and to cope with the demand for mortgages and the fact that the Bank or Building Society Manager no longer see applicants and make these decisions, lenders introduced automated credit scoring models to assist them in making lending decisions.
To set a ‘score card’ each lender reviews historical lending data and analyses the financial circumstances of those borrowers that have had arrears & compares them against those borrowers with an un-blemished payment history. It looks at cause and effect and then the sets it’s score card accordingly to deter those borrowers that are similar to those that have got into difficulty in the past.
A credit scoring model simply looks for warning signs to potentially stop arrears in the future by not lending to applicants of a similar profile. Unfortunately, it tars everyone with the same brush and if an applicant doesn’t fit the model, they will end up getting declined.
Historically, all the Bank or Building Society Manager had to go on was how they were conducting the bank account and that they were saving a regular amount each month to show the ability to maintain a mortgage payment in addition to usual day to day expenditure. Credit Reference agencies as we know them today didn’t exist until 1982 when CCN (Now Experian) launched CAIS which allowed lenders to share credit account information on individuals. However, it wasn’t until 2003 when Credit Expert launched the ability to access your credit file online.
There are now 3 main credit reference agencies used by lenders, Experian, Equifax & Transunion and in today’s lending climate credit scoring models place a huge weighting on credit profile in the decision to lend or not. Things to watch out for:
- Public records (CCJ’s and bankruptcies). This will usually lead to an automatic high street decline
- Percentage of available credit being utilised. If you are over limit on a credit card or overdraft or approaching your limits across a number of accounts then it appears you have overcommitted yourself and will struggle to afford any new commitments
- Amount of credit outstanding relative to income.
- Little or no credit history – A lender has nothing to go on so no credit is sometimes as bad as adverse credit
- Several new accounts opened at once can indicate to lenders that you are credit hungry and they will decline
- Several searches done at the same time can also worsen your credit rating for the same reason – it appears that you are credit hungry (even if you are only opening different bank accounts, applying for a new mobile etc)
Lenders are heavily reliant on your credit report in making the lending decision but will also take into consideration stability of address and employment within the score card as an applicant that has moved every six months is more likely to get declined than an applicant that has been at the same address for 5 years.
It is called a credit score as a lender will place a numeric value on a variety of application criteria and allocate points for things such as: the length of time at current address, whether there is a home phone number, a contract mobile, length of time with employer, job type, salary, length of time with Bank, type of account & facilities held, savings and then payment profile on existing financial agreements. Obviously, all the points are added up by the system and compared against the pass / fail to decide whether they will lend.
| PROBLEM | SOLUTION |
|---|---|
| Self employed but only accounts available for 1 or 2 years | We have access to lenders that will use 1 years account or 1 year + a projection in assessing what they will lend to you |
|
Little or no credit history |
If you have failed credit score on the high street as you don’t have any credit, we will recommend a lender that credit searches only and doesn’t credit score |
|
Historic adverse credit history problems |
If you have CCJ’s (County Court Judgments) or Defaults that are within the last 6 years then subject to your specific circumstances, we have lenders that may ignore them with deposit of at least 10%. |
|
Deposit requirements |
5% deposit is the minimum required on a standard purchase but if you fail credit score at this level, we can assess your circumstances and advise you on the best course of action. (We may suggest increasing your deposit to make it more likely to get a mortgage) |
|
Low Cost / Affordable Housing Schemes |
We still have 100% mortgage available or low deposit schemes in this area. We will recommend the most appropriate scheme for your requirements. |
Check your credit history
We recommend obtaining a copy of your credit file and ‘Check My File’ is the most comprehensive as it extracts your credit data from numerous credit reference agencies in one report, We can review the file with you to explain exactly what the various entries mean. Check My File is offered free for 30 days and then £14.99 per month thereafter and can be cancelled at any time. If you are thinking of applying for a mortgage then we recommend taking advantage of this service so that you can see exactly what a lender will see when you apply for a mortgage and they credit search you.
We will provide you with advice of how to improve your credit rating so that we can get you a High Street mortgage as soon as possible.
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