Money: A User’s Guide. Laura Whateley
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that you have time to sort it out if it’s poor, but it’s worth doing even if you intend to apply for a mortgage next week.
• MAKE SURE YOU ARE ON THE ELECTORAL ROLL
This is essential. If you are not you won’t get a mortgage. Banks use the electoral roll to check you are who you say you are. Make sure your name is spelled right, all your address history is correct and up to date, and that you are registered to vote at the same, most recent, address.
• GET A CREDIT CARD AND USE IT IN A CHILLED-OUT MANNER
If you have a poor score because you have not had credit in the past, take out a credit card and use it for day-to-day shopping for a few months. Set up a direct debit to clear if off in full every month. Don’t just pay the minimum payment, but don’t max it out either: the perfect amount of spending is about 10 to 30 per cent of your credit-card limit. It demonstrates that you can borrow sensibly without losing the plot with all this lovely free money. A monthly credit-card balance below 30 per cent can gain you 90 points on your credit score, according to Experian, which scores from 0 to 999. A score of around 780 is fair, one of above 961 or higher is excellent. A card balance above 90 per cent will cost you 50 points.
• ADD RENT TO YOUR CREDIT HISTORY
You can now ask for rental payments to be added to your Experian credit score to demonstrate that you are a reliable rent-payer. Not all banks take this into account yet, but there are hopes that this will slowly start to change, so it is worth doing.
The Rental Exchange scheme records your rental payments and sends the results to Experian. You need to actively sign up to do this by paying your rent through a company called Credit Ladder, which then passes on your money to your landlord or letting agent, so run this past your landlord to check that they are happy with it first. Equifax and Callcredit don’t yet consider rental payments.
• DON’T APPLY FOR OTHER STUFF
Don’t be over-keen. Applying for too many accounts and loans in a short space of time does not go down well. If you can, avoid applying for anything (mobile phone, credit card, bank account) within six months or so of applying for your mortgage.
• BREAK UP WITH YOUR EX
Break any links to ex-partners and former flatmates with whom you have shared joint accounts or joint bills. If you are still wrongly linked on your report, contact all three agencies to ask them for a ‘disassociation’. Contrary to popular belief, just living with someone else who failed to pay their bills on time will not damage your credit file, but if you were financially tied to them then their poor credit history will reflect negatively on yours (conversely their excellent credit history reflects well on you). Bear this in mind before you open any kind of joint financial product.
• PAY ALL YOUR BILLS ON TIME
Make sure you do not default on any household bills. Credit reports include information from, for example, your gas, electricity, insurance and water supplier. Any defaults, even if you failed to pay just £5, stay on and damage your report for six years.
Missing your last payment on an account will cost you about 130 points according to Experian; receiving a default, when an account is passed to debt collectors, or getting a court judgement, will cost you more than 250 points. These things fade over time, though: after three years you will lose fewer points for them. If there are any mistakes on your report, or any defaults that you think are unfair or misrepresent you, then you can ask the credit-reference agency to investigate them and add a note of up to 200 words (known as a notice of correction) on your file to put them right. Lay out why you feel they are unfair, or why your circumstances have changed. For example, you might write that you missed a bill because you had lost your job, but you are now fully employed and back to paying bills on time.
• REDUCE YOUR DEBTS (BUT DON’T WORRY ABOUT STUDENT LOANS)
Pay down any debt you have as much as possible before applying for a mortgage: lenders will look at your ‘balance trend’ as part of credit scoring. This does not include student loans. Arguably you would be better off boosting your deposit than using savings to pay down any student loan. See the next chapter for more on why.
• BE CAREFUL ON FACEBOOK
There have been stories that banks take what you post on social media into account. This is hard to prove, but Andrew Montlake, of the mortgage broker Coreco, told me that he would suggest those looking to apply for a mortgage should be careful about what they share. ‘Gambling stories, wild nights out and lavish spending boasts should probably be avoided.’ Also avoid sending or receiving cash to your bank with ‘banterous’ references. Banks have rejected people based on ‘drug money’ appearing on their statements, even if it is obviously a joke.
• DO NOT GET A PAYDAY LOAN
For some banks payday loans are also an absolute credit-score killer. Some banks will not lend to you at all if you have taken out a payday loan, others are less fussed. But best not to go anywhere near Wonga at least a year before you apply for a mortgage if you can help it. Ideally never go anywhere near Wonga.
• GET A COPY OF YOUR OLD REPORT IF YOU HAVE MOVED TO THE UK FROM ABROAD
If you have moved from abroad, bring a copy of your credit record from the main agency in your home country to the UK, then contact Experian, Equifax and Callcredit and ask them to put a note on your file that you are willing to provide a copy of your credit history. Monese offers bank accounts to people who have no proof of address, maybe because they have no credit record in the UK and therefore their name is not on a utility bill.
You have got a deposit and can afford a mortgage! So what is the process of buying a house?
You spot a house you like advertised with an estate agent. You work out whether you can afford it and stamp duty based on whether you can get a mortgage. You can at this stage get a ‘mortgage in principle’, which is a non-binding agreement stating how much, based on your income, outgoings and credit score, a bank will lend you. If all looks good, you put in an offer for the property, which is hopefully accepted by the seller. You then appoint a property lawyer to start what is called the conveyancing process. You find the mortgage you want – it doesn’t have to be with the same bank that gave you a mortgage in principle – and apply for it for real.
Once the sellers have accepted your offer there is still no guarantee that they will definitely sell to you, just a ‘gentleman’s agreement’. There is a chance that you could get gazumped. That’s where another seller swoops in with a higher offer, and a greedy seller dumps you for the new bidders. Gazundering is where you, the buyer, lower your offer just before exchange of contracts. There is nothing other than your conscience, and the risk of pissing off the seller, who may pull out, to stop you doing this, but all the same, better not to – bad karma.
Cross your fingers you do not get gazumped, and insist that the person you are buying from takes down the online or estate-agent advert for their home (the estate agent probably will not do this unless you force them to). In Scotland an offer being accepted is legally binding, sometimes subject to a mortgage being approved, so you are unlikely to be gazumped, or pull out once you have put your offer in.
Your bank will carry out affordability and credit-score checks and then, with a mortgage-valuation survey, on the property you