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How Do The Lenders Assess Credit Score For First Time Buyers?

Building and maintaining a healthy credit score in the UK is essential when applying for a mortgage as a first-time buyer. If an applicant is having a low credit score, high-street lenders might not accept their mortgage application. It doesn’t mean that it is the end of their home buying journey! An experienced independent mortgage adviser would assist applicants with low credit scores to find a suitable lender.

Who monitors my credit and other financial activities?

There are few established credit reference agencies in the UK such as Experian, Equifax, and Call Credit. High-street lenders, building societies, and other specialist providers refer to the information provided by these agencies when making their mortgage decision. Sometimes, lenders have their internal credit scoring system to determine applicants’ eligibility.

As most lenders are referring to the above-mentioned, credit agencies, it is advisable to check the credit score with all three providers. Different lenders use different credit reference agencies. Therefore, if you could generate a credit report which combines the results of all three agencies, it would give you a better picture of your credit score.

Applicants could speak to an independent mortgage adviser on receiving the instruction to generate the full credit file with all required information. Further, they would guide the applicants with a detailed review and suggestions/tips to improve a low credit score.

Important to find out the reasons behind the low credit score  

There could be many reasons for someone to have a low credit score. The most common reasons could be miss payments on credit commitments and default utility bill payments. It could bring down the credit score by a huge margin.

There could be other reasons such as applicants’ existing residential addresses not being properly updated on personal bank statements. For example, if applicants have recently changed the residential address, they need to update it with the related parties such as banks and utility providers.

Would my credit file get cleared once I fully settle the credit defaults?

Adverse credit management could lead to Individual Voluntary Agreement (IVA) or bankruptcy. It would have a direct impact on the credit score. The worst-case scenario would be the record on any type of credit default would be indicated on the credit file for few years even after full settlement.

The applicants must settle the payment consideration related to any County Court Judgement (CCJ) or other adverse credit as soon as possible. However, as mentioned above, even after full settlement of credit default, it would appear on your credit file for few more years.

For example, a CCJ will still stay on your credit report until six years. On a positive note, the record would show that the applicant has settled the debt. Further, if applicants have been declared bankrupt, they would not be in a position to apply for a mortgage until they have been officially discharged. It normally takes twelve months to get discharged from bankruptcy. Once discharged, some lenders might accept your mortgage application whereas others want the applicants to wait few more months.

Therefore, it is advisable to seek consultancy services from an independent mortgage adviser if you have any sort of adverse credit or low credit score.

How should the first-time buyers monitor the credit score?

Sometimes, mortgage applicants think that they have a good credit score and figure out later, why it has been affected adversely. Therefore, it is important that if you are planning to buy a property, you should monitor your credit score and update the credit file with accurate, up-to-date information.

The independent mortgage advisers would review your credit file and guide you on how to increase the score before you apply for the mortgage! They are experts in identifying the hidden reasons behind low credit scores. Applicants often complain that their score is low even without any credit miss payments. They could speak to an adviser and figure out the reasons behind low credit scores.

It is important to maintain the correct address record on the electoral roll. First-time buyers often have different addresses within three years as they change the house as private tenants. If they don’t update the electoral register along with their move, there could be discrepancies in the address history.

Also, when a potential first-time buyer is frequently changing the residential address, the lender might observe it as risky from their perspective. It indicates to the lender that the applicants are not settling down at one place for a reasonable period. The frequent change in residential address might affect the credit score too.

First-time buyers need to consider several factors related to credit score when planning to buy the first property. It might be difficult for them to focus on all the aspects of building and maintaining credit score.  

Overall, specialist lenders have come up with alternative solutions for applicants with low credit scores. It is important to approach a suitable mortgage lender depending on the applicants’ circumstances. Independent mortgage advisers would know exactly how to find a suitable lender.

As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments

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Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of our Independent Mortgage Brokers to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisers working for or with Independent Mortgage Brokers are fully qualified to provide mortgage advice and authorised and regulated by the Financial Conduct Authority. All our independent Mortgage Brokers will offer advice specific to you and your needs and circumstances. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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