How a Mortgage Application Affects Your Credit Report

You may have an initial drop in your credit rating when applying for a mortgage due to the fact you will need to undergo 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.

Generally speaking, one hard search won’t have a huge impact on your credit score. Although there may be an initial drop in your credit rating; it’s often only minor and temporary.

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.

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.

Mortgage credit checks will show a range of information, including:

• Personal details – information including your name, address and date of birth
• Credit list – a list of bank accounts with overdrafts, loans, credit cards and debts
• Payment history – including details of any missed or late payments
• Financial ties– if you have joint credit with a partner or spouse, it will show up here
• CCJs and IVA – County Court Judgements and Individual Voluntary Arrangements from the past 6 years will show up as well
• Previous addresses – including several years of records on where you have lived
• Electoral register details
• Missed payments – further details on missed or incomplete payments and repayments
• Overdrafts – full details of what overdrafts you have
• Fraud issues– whether you have committed fraud or been a victim of fraud
• Bankruptcies– with details from the past 6 years
• House repossessions – that have happened any time in the past 6 years

Yes, most mortgage lenders do credit checks when assessing whether or not to accept a mortgage application. This means that the lender will look at your financial history to get an overall understanding of how you’ve managed your past finances. This information will then contribute to their decision on whether to lend to you.

Different lenders have different criteria when they do a credit check, so it can be hard to know beforehand whether or not you’ll be accepted. This also means it’s possible to get a mortgage with a bad credit history if you find the right lender to offer you a specialist mortgage.

While the majority of lenders will use the information held by credit reference agencies to check your credit profile before granting a mortgage, not all lenders operate in the same way. Some specialist adverse credit lenders assess the suitability of borrowers by doing manual underwriting and speaking with the applicant’s mortgage broker to better understand the applicant’s situation.

If you’re applying for multiple mortgages, this will affect your credit score.

Multiple hard credit checks and multiple mortgage applications, in a short period of time, could be considered an issue for some mortgage lenders, especially if they’re on the same property.

It’s worth bearing in mind that if you have multiple properties that you need to remortgage or take out borrowing on within a short time period, this won’t necessarily be an issue for the lender. Having multiple hard credit checks due to mortgaging multiple properties isn’t viewed in the same way as having multiple hard credit checks for one property. In fact, it’s a common occurrence for landlords.

When applying for a mortgage, you should always be aware of the potential impact on your credit score. You can minimise the effect of a hard search.

• Go through an independent, specialist mortgage broker – a broker like John Charcol can help you find the most suitable mortgage for your circumstances, without having to apply with multiple lenders. This will reduce the number of hard searches performed and increase your chances of being approved at the same time. At John Charcol, we have access across the whole market, so we can find you the right mortgage more quickly and easily then if you look yourself
• Check that lenders are using a soft search – depending on your situation, it may be worth checking with your broker or lender that a soft search will be carried out at DIP stage, not a hard one
• Limit the number of credit applications you make – make sure you only apply for mortgages and other forms of credit when absolutely necessary, as too many applications in quick succession could have a negative effect on your credit score
• Be honest – when filling out your mortgage application, it’s important to be honest. Not only could you be prosecuted for fraud if you lie, but a hard credit check will reveal what’s on your credit record anyway, so being honest with your broker will ensure a smoother process in which you only approach a lender that can genuinely consider your application

Following these steps can minimise the effects of your mortgage application on your credit score. If you need advice on how to get a mortgage or help with an existing application, our team of expert advisers can help on 023 8235 2300.

If you’ve previously struggled to be approved for a mortgage and applied several times without success, this could have had a noticeable impact on your credit score. To ensure that you have the best chance of being accepted, it’s important to understand what lenders are looking for and how to present yourself in the best light.

Here are a few things you can do to improve your chances of approval and maintain your credit score:

• Use a mortgage broker – a mortgage broker like John Charcol can identify which lenders can consider your application, saving you from applying to unsuitable lenders. Furthermore, many adverse credit lenders only operate via intermediaries; they won’t consider an application directly from an applicant. Using a mortgage broker like John Charcol will give you access to more lenders and therefore better deals
• Save for a bigger deposit – sometimes lenders will require a larger deposit if you have bad credit. Saving more will give you access to more deals and possibly better rates
• Work on your credit score – if your credit score is holding you back from getting a mortgage, it could be worth working on improving it before applying. This could include paying off existing debts and making sure payments are up to date, as well as simple actions like registering on the electoral roll or setting up a direct debit to pay off your credit card regularly
• Don’t take out additional credit – taking out additional forms of credit or loans before applying for a mortgage could affect your application and damage your credit score, so it’s best to avoid this if possible

By following these tips, you can increase your chances of being approved for a mortgage. The main thing to keep in mind is that applying for many credit products in quick succession is likely to have a damaging effect on your credit score.

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:

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.

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.

Don’t despair if your credit score has been affected by a mortgage application or repayment problems. Taking some simple steps can help get you back on track.

Here are some tips that can help rebuild your credit:

• Pay bills on time – making punctual payments is the best way to improve your score over time. Missed payments can lead to serious issues such as CCJs and debt collection, which can stay on your credit report for 6 years. Auto-payments and calendar reminders are 2 effective ways to ensure bills are paid on time
• Avoid taking out new unnecessary credit – taking out additional credit such as loans will lower your credit score due to the required credit checks
• Check credit reports – ensure all the information on your credit report is accurate and up to date. If you spot errors, make sure you correct them with the credit reference agency as soon as possible
• Set up payment arrangements – if you’re struggling to make payments, contact your lender and ask them if they can come up with a repayment plan that you can afford
• Reduce credit utilisation – keep your credit utilisation – the amount of credit used compared to the amount available – low by paying off the majority of your debt before applying for new credit
• Monitor fraudulent activity – monitor your credit report regularly for any suspicious activity and alert the lender if you spot anything unusual
• Register on the electoral roll – being registered on the electoral roll can help lenders identify you and verify your address history, which is important when you’re applying for a loan

By following these steps, it’s possible to repair your credit score and get back on track. You may need to be patient as it can take some time for your credit score to improve, but it will be worth the effort as you’ll be able to access credit at better rates when you need it.

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 023 8235 2300 and we’ll be happy to help. We look forward to helping you secure the best mortgage deal possible.