MAIL ON SUNDAY: Credit ratings and why they're so important now....

The mystery of how scoring systems vary per referencing agency is a black box – a science unmastered. One thing I do know as a mortgage broker is that the report itself is far more important than the score. There is a long list of lenders who take no notice of the score as long as there is nothing negative in your six-year credit history, and even if there is, will provide an opportunity for an explanation. The biggest mortgage lenders use scoring as an acceptance threshold – arguably unfairly without a deeper dive, but they're too big and too busy to care. They do often have the best deals though, so for best eligibility use credit wisely; leave plenty of headroom on limits and be organised with payments to keep it high. But even if you slip up, it shouldn't kill your mortgage hopes.

Credit scores play a huge part of a person’s ability to obtain credit or get a mortgage. It’s not just the score that's important, their credit history is just as important, if not more so. There are three main credit reference agencies (Experian, Equifax & Transunion) and it is worth signing up to one of them to give an overview of your score and history. With the cost of living increasing month by month, there will be many people who will struggle to keep up with payments based on their current budgets. This could have a negative impact as you may end up receiving higher rates of interest for any future borrowing. 2023 will be a difficult year for many and if you are struggling, please speak to your credit provider to look at other alternative payment arrangements, otherwise, make sure your payments are kept up to date.

Credit scoring is something to be aware of but not scared of. Most lenders will look at not just your credit score but things like debt to income ratio, address history, employment history and where your deposit is coming from alongside the credit score to make a lending decision.

As long as you have no missed or late payments in the last six months before applying for a mortgage, you shouldn't have an issue, especially if you are buying jointly.

There are lenders who will look at clients who have had more serious credit issues in the past such as defaults and CCJ's too.

To minimise issues that personal credit scores may have, the best you can do is check your file early for anything adverse and make your advisor aware. Aside from this just ensure you pay your credit accounts on time and in full each month

It's important to understand that having a high credit score, like a 999 on Experian or Equifax, doesn't guarantee approval for a mortgage in the UK. While a strong credit score can help, lenders also consider other factors when evaluating a mortgage application. In fact, over 90% of lenders have their own internal credit scoring system that applicants must meet in order to be approved for a mortgage. It is worth noting that these internal credit scoring algorithms are typically kept secret by lenders, so it is difficult to know exactly what factors they consider. However, some factors that may impact a borrower's internal credit score include the loan-to-value ratio, income level, and outstanding debts. To improve their chances of being approved for a mortgage, borrowers should pay bills on time and keep other debts low.

Credit agencies charging £15 a month to consumers to access their credit report should have been killed off ages ago. It is a misrepresentation to present one credit agency's credit score as "the" credit score. Each lender has a scorecard based on its preferences and whilst a specific agency's own credit score may be a broad brushstroke, individual lenders can score the same customer differently. Post GDPR credit data has become more accessible, but, credit scoring is a thinly veiled marketing opportunity to promote financial products.

Consumers should not be hung up on "their credit score" and instead speak to an independent mortgage adviser who will find the lender most appropriate, which may be a credit-based recommendation. To have the best chance of a good score, be visible (on the voters' roll), have credit and pay on time.

The score is just an indication and this is where we need to educate our clients. The information in the report is what we look at, has their been any late or missed payments, defaults, and how you manage your credit cards and loans.

Black marks on your credit score can potentially have a significant impact on your ability to get a mortgage and could end up requiring higher deposits or ending up with a higher interest rate.

If you have any worries about your credit report it would be highly recommended to speak to a mortgage broker to talk through your options.

The first thing that we need to understand, is that you don't have a universal credit score. You have a credit file and that raw data is processed and assessed by each lender in a different manner to see if you pass, or fail, their unique credit score. However, it’s not just the data from the credit file that forms a lenders credit score: age, employment status, length of time with your employer, length of time at your address, type of work you do, any and all data can be used to form part of your credit profile and score with a lender. This is what makes any “hints and tips” difficult – as what one lender may like to see, another lender may take the completely opposite view. The best answer is to find a great mortgage broker to help you.

It’s frustrating for customers when their scores can vary so much between the agencies. This is due to not all FS firms supplying data to all three agencies but most people won’t know that and feel that these scores are a black box. I don’t think that’s the case and the D2C free score model has done a lot to educate consumers about their score and steps that can be taken to improve their chances of credit. The next two years should scare customers as many traditionally solid customers, will miss payments and default on loans mainly due to macroeconomic factors. As the world recovers and utility bills lower the agencies currently don’t allow people to improve fast enough. The sharing of open banking data is starting to be used by the likes of Experian to boost scores quicker but I think more needs to be done to use current data.

People fear their score much more than they focus on the content in their report itself.

Lenders all 'score' things their own way regardless of whether you have a '999 Experian score' or not. The detail in the content is far more important in my experience.

I've seen more problems with credit utilisation than the odd missed payment on someone's report. Sometimes accidents happen, and often lenders understand this.

Keeping your balances in control is vital, especially if you are considering using credit cards to pay bills or subsidise your living through the current crisis. Lenders take a dim view of balances nearing the credit limit on cards, especially if there are multiple, and they aren't cleared or significantly reduced frequently.

Keep this in mind in the months prior to needing a mortgage.

Credit scores have always been a bit of an enigma when it comes to mortgages, as the credit file provided by the agencies is only part of what makes up your credit score for a lender and lenders don't disclose how they score you.

It's important to know what is on your credit file because if there are any credit 'blips' i.e. missed payments, defaults or CCJs this can affect your ability to get a mortgage and those factors don't necessarily mean you won't get a mortgage but they could mean you need a specialist lender who may charge you higher fees and a higher rate of interest.
You don't need to subscribe to a monthly service to find out what is on your credit file but it is a good idea to check it before you try to obtain a mortgage.

There is confusion from clients who believe that their credit score dictates their ability to get a mortgage - this is a misconception. It is common for someone with little or no credit history to have a high score on reference agencies but this would not mean plain sailing when it comes to sourcing a mortgage. At High Loan to Values where most first-time buyers sit, lenders have increased the internal score required to pass their own assessments making it harder to obtain these mortgages. There is a Chinese wall in the industry meaning that little is known of these magical algorithms that dictate an individuals mortgagability. The ONS data used by lenders to assess affordability will increase with cost of living figures adding another layer of complexity - any individual with concerns should seek out a broker who will offer advice.

I have been saying for a long time that if I can offer one piece of advice then it is to protect and monitor your credit score.

With the increased usage of open banking and reduced personal interaction with banks, it’s more and more likely that your ability to borrow money, obtain credit and even have a mobile phone contract will come down to your credit history.

I suggest subscribing to a subscription service to ensure your score is accurate, using available credit (have a small credit card even if you don't need it), always making payments on time, and don’t ignore any potential negative impacts.

These can be simple things like unpaid parking fines, or small utility bills from a historic house move. These minor matters, often for a few pounds, can prevent you obtaining a mortgage or other credit for years to come.

Be afraid, be very afraid. A mortgage application can be thrown out of the window if the borrower does not pass the lender's internal credit scoring system. Having a score of 999 does not automatically mean you will be eligible for a mortgage.

If you are thinking of applying for a mortgage preparation is key. A top tip would be to not use an overdraft facility and keep your credit utilisation low, keeping balances below 25% shows you are sensible with borrowing.

As the cost of living crisis deepens more and more people will fall behind with their credit commitments and these blips will have an impact on creditworthiness.