How a Mortgage Application Affects Your Credit Report

Securing a mortgage is a major life achievement and your credit score could benefit from it too. While initially taking out the loan can temporarily set your credit score back, making consistent payments on time will boost your score and improve your credit record.

The initial drop in your credit rating is often due to the fact you’ve had a necessary hard credit check. Hard credit checks are usually made during the underwriting process once you’ve submitted your full mortgage application, although some lenders will carry them out at the DIP (decision in principle) stage instead of a soft credit check.

Once you have secured your mortgage, it’s important to make payments on time and in full each month, as any missed or late payments would likely damage your credit report and impact your ability to borrow in the future.

Keep reading to find out more about the 2 different kinds of credit checks and how they can negatively impact your credit score or leave it unchanged.

Soft Credit Checks

A soft search, “soft pull” or “soft check”, might be done during the initial inquiry (DIP) stage and is usually used to assess whether the lender is likely to approve you for a mortgage, based on the information you’ve provided. Soft credit checks don’t typically impact your credit score in any way as they don’t leave a footprint that other lenders can see on your credit report.

It’s a good idea to check with your broker that the credit check at the DIP stage is soft before you proceed.

A soft check will provide the lender with the credit information they initially need to provisionally approve you for a mortgage, such as past addresses, debt and repayment records. Any serious issues will be flagged and details will be visible to the lender. Soft checks are very common, as any entity registered with credit reference agencies can run a soft check on you when they have a legitimate reason to do so. This includes companies such as banks, insurers and utility companies.

Hard Credit Checks

A hard search, sometimes referred to as a “hard pull” or “hard credit check”, is often carried out once you’ve submitted your full mortgage application. Some lenders may perform a hard credit check at the DIP stage of the process, information on which you can find out from your broker or lender.

When performing this type of search, lenders will leave a footprint on your credit profile that all future lenders can see. One hard search won't necessarily have a major impact on your credit score, but if several inquiries are performed in quick succession, known as “credit chasing”, this could negatively affect your credit score.

A hard search will provide the same information as a soft search, such as past addresses, debts and repayment records, as well as any credit issues.

The only real difference between a hard search and soft search is that a hard search leaves a footprint on your credit file and is visible to other lenders and creditors.

Generally speaking, one hard search won't have a huge impact on your credit score. Although it could slightly lower your score, this minor drop is only temporary. Consequently, one hard credit check shouldn’t have a large impact on your credit score or affect a lender's decision to approve you for a loan.

In addition to being a major step towards purchasing a home, taking out a mortgage can actually be beneficial for your credit score. When correctly managed and paid on time, having a mortgage on your credit report can demonstrate to other lenders that you're responsible with your finances. This could potentially lead to better deals in the future - for example, when it becomes time to remortgage.

And, as long as you can demonstrate solid financial responsibility with your mortgage and other debts, securing additional forms of credit could also be within reach – e.g. credit cards, car finance, etc.

If you’re experiencing financial difficulties or struggling to make mortgage payments after applying, it's important that you contact your broker and/or lender as soon as possible. Lenders may be able to offer a repayment plan or provide advice on how to get back on track with payments. By talking openly about your financial circumstances, lenders are more likely to give you additional help and support. However, it's important to note that taking out a mortgage is a huge financial commitment, and you should never apply for more than you can afford to repay.

Here are some ways that your credit score can suffer if you miss payments:

Late Payments

Repeated late payments and missed payments can significantly negatively affect your credit. Even one late payment can damage your credit history. In fact, 35% of your credit score is based on your payment history, making it the most important factor in its calculation. Late payments will stay on your file for 6 years, making it harder to get other forms of credit in the future.

Foreclosure

A foreclosure is a legal process where the lender takes possession of your home if you default on mortgage payments. Foreclosures can have an extremely negative effect on your credit score and stay on your report for up to 6 years. This will make it challenging to get approved for future loans or mortgages, as lenders may be wary of lending to someone with a foreclosure on their record.

At John Charcol, we understand the importance of securing a mortgage that’s affordable, with minimal impact on your credit profile. As we are an independent, specialist mortgage broker, we can help you find the best possible mortgage deals and make sure that your credit score is protected. We are experienced in dealing with all circumstances, from first-time buyers to adverse credit history holders.

As we have access across the whole market, we know which lenders are likely to consider your mortgage application, no matter how complex your circumstances. This means that you can avoid multiple applications and prevent further damage to your credit score.

If you'd like to apply for a mortgage, contact the team at John Charcol today on 0330 433 2927 and we'll be happy to help. We look forward to helping you secure the best mortgage deal possible.