Preparing to buy a house feels like a pretty daunting task and the thought of needing a ‘perfect’ credit history can sometimes feel impossible.
Data from PWC suggests there may be up to 14 million people in the UK with ‘less than perfect’ credit, struggling to access credit from mainstream lenders, despite only having minor blemishes on their credit history.But what is ‘perfect credit’ and does it even exist?
Paul Elliott, Head of Mortgages at Atom bank, who have introduced Near Prime mortgages into their product range this week, busts 5 common myths around having the ‘perfect’ credit history, revealing what can and can’t affect it and what happens if your application gets rejected.
Your credit history is a record of how you’ve managed your money in the past – including past borrowing, repayments and any missed payments – this is quantified by a score or ranking. The general consensus is that the higher your credit score, the better your chances of being offered a loan. However, as Paul explains, there are many myths and misconceptions that may put some consumers off from applying for a mortgage if they don’t think their credit history is quite perfect, something Atom is hoping to challenge through making mortgages accessible to more people.
Paul Elliott, Head of Mortgages at Atom bank, said: “We’re constantly told that our credit score is the most important part of securing a mortgage so it feels like a daunting concept. As humans we fear the unknown and the lack of education around finances and credit for younger people means that we grow up not really understanding the role that credit plays in securing a mortgage, yet fearing it anyway.
“The main way we can combat that fear factor is through proper education on what it all means. In the UK, there isn’t actually one overarching number attached to you that dictates to lenders whether they should take you on as a customer. Instead, you have a ‘credit report’ which encompasses your credit history. Simply understanding that there isn’t one golden number and what’s contained in your credit report makes the process of building a strong credit history seem much more achievable.”
If I keep checking my credit score, will it go down?
Many of us have heard the theory that any checking of your credit score has a negative impact on your rating, but is that really true?
Paul comments: “This is not the case, the number of times you’ve checked your own credit score isn’t shared with lenders but making credit applications means that lenders will check your credit history and this can result in your credit score being impacted. In fact, it’s a good idea to keep an eye on your credit score regularly to be sure that all data recorded is accurate. Report any incorrect information straight away.”
Should I get a credit card from a young age?
Most of us have been told at one point or another that having a credit card from a young age is the holy grail of building up your credit history, but if you’re not careful it can actually have the opposite effect.
Paul advises: “Ultimately, this depends on the person, their spending habits and their relationship with money. Getting a credit card and paying off amounts regularly can boost your credit score by proving your payment history but if you are unable to make a payment, it can have adverse effects and actually have a negative impact – so think carefully before taking out a credit card.”
Does my credit score have to be high to get a mortgage?
There’s not actually any ‘golden number’ that means you will or won’t get a mortgage.
Paul explains: “There’s no exact minimum credit score for a mortgage – each lender has different requirements that have to be met for you to qualify for a loan. They will look at your whole credit history and may still offer you a mortgage if it’s not perfect, although you may have to pay higher interest rates. A low credit score means that you may be able to borrow from fewer lenders compared to someone with a higher score, and it may be more expensive when you do.
If I’ve missed any monthly payments, will I be disqualified from getting a mortgage offer?
Although missed monthly payments should be avoided, they don’t have to be the end of the world.
Paul elaborates: “Late or missed payments can stay on someone’s credit report for up to 7 years and most mainstream banks will decline loan applications if they have missed multiple payments.
“If you have missed payments, then a Near Prime mortgage may be the option for you. Our Near Prime offering at Atom accepts applicants even if they’ve had a few financial indiscretions (visit our website for the full list of criteria ) – we acknowledge that these things can happen and not everyone will have the perfect credit history, so the new mortgage offering is launching to support more people.”
If I get rejected for a mortgage application, will I never get one?
This is a scary thought, but luckily it’s not true!
Paul explains: “In the majority of high-street banks, mortgage applications are rejected when customers have less than perfect credit. Although this can feel daunting, it doesn’t mean you won’t be able to secure a mortgage another way, whether that’s through waiting and building up your credit history, or through opting for a different type of mortgage.
“In the current housing market, it’s important to offer more people in the UK the opportunity to become homeowners and extend the availability of credit within the UK lending market, which options like Near Prime mortgages allow.”
