There are easy steps you can do to understand to help you get prepared
A mortgage credit check can influence a borrower's ability to secure favourable interest rates and terms on loans. Knowing that a lower credit score could lead to higher borrowing costs can be a source of stress.
Although borrowers may be uncertain about the outcome of such a check, especially if they have a history of financial issues, there are easy steps you can do to understand the process and get you prepared.
What are mortgage credit checks?
Lenders conduct credit checks for mortgage applications so they can verify if your creditworthiness is fit to repay a loan. Before proceeding with a mortgage application approval, they’ll look at your financial history to assess your credit history and determine the level of risk involved when they offer you a mortgage.
A full credit check requires you to furnish complete documents so that the lender can verify if you can still afford the repayments once they increase in the future. Your lender will also look into the property’s valuation to assess how much loan will be offered to you.
This usually includes an in-depth interview that delves into your credit report, past and current mortgages, previous financial difficulties, and your financial resources to check if you will be responsible enough to pay your mortgage.
Your ability to prove that you are financially capable can spell the difference between acceptance and rejection. It does not mean, however, that when they find a red flag, you’d be rejected right away. Each lender has a different set of criteria to identify your level of risk, so you may not be qualified by one lender but can be conditionally approved by another.
However, you should always aim for a stellar credit history to make it easier to apply for a mortgage. This means you have to be prompt in paying your utility and credit card bills, checking for errors in your credit report, lowering your credit utilisation, and being mindful of any missed payments or defaults.
What kind of check will lenders perform?
There are two types of checks: soft and hard.
Soft Credit CheckThis type of credit check does not require a full search and will only be about a basic understanding of your creditworthiness. It will not be visible on your credit report, and other credit companies will also not be able to view this information. Because of this, it will not affect your credit rating.
Soft credit checks can be made by you when you check your own credit report, or when a lender assesses whether you’re eligible for a mortgage or not. When you also apply for a job, your employer may perform a soft credit check too.
Hard Credit Check
This type of credit check is made by researching your entire financial history to identify any issues with your ability to repay your loans or other financial obligations.
Unlike a soft credit check, a hard credit check will leave a footprint on your credit report, which can be accessed by lenders.
Remember, any negative issues on your credit report such as overdue payments will appear on your credit report for a number of years.
When do mortgage lenders perform credit checks?
A lender will prepare a ‘mortgage in principle’ to identify how much loan will be given to you. This document contains how much you can borrow and that you have been approved for that amount. It is not a guarantee, however. It just states how much a lender is willing to lend you. You will present this when making an offer for a property.
To come up with a mortgage in principle, a lender will have to conduct a soft or hard credit check, although most of them will conduct the former. Some lenders, on the other hand, will perform a hard check once your property purchase is nearing its final phase (prior, during or after the exchange day), or before the completion day.
What do mortgage lenders check?
Lenders typically assess the following:
Credit history
Loan approvals and rejections
Repossessions
Bankruptcy
Credit use
Any amounts owed
Credit inquiries
Previous and current loans
Income and other sources of earnings
Overdraft usage
Other personal information that may affect your ability to repay
How a mortgage check impacts your credit rating
You should take caution when running too many hard credit checks since this will impact your credit score. For instance, if you’ve had a couple of hard checks for the past six months, this will appear as a red flag for many credit rating companies since it reflects that you depend too much on loans to support your needs.
Remember that a hard credit check will appear on your credit report for 24 months.
How The Mortgage Hut can help you
If you've previously been declined a mortgage due to bad credit, or you’re concerned that your file will inhibit your chances of being approved for a mortgage, don’t hesitate to get in touch.
A mortgage broker will ask for your credit report to assess the best mortgage for you, from hundreds of lenders. They can also offer valuable advice on how to improve your chances of successfully applying for a mortgage. By matching you with the most suitable lenders, you will not have to make multiple mortgage applications, which can impact your credit score.
The Mortgage Hut’s team of expert advisers is composed of expert credit specialists, whose input could prove invaluable for your application. We can also point you in the direction of those lenders with the most flexible criteria.
Frequently Asked Questions (FAQs)
1. How will a hard credit check impact my credit score?
You may see a small decrease to your credit score as a result of the check, and it will be visible on your report for around two years. Aside from that the impact is relatively small, especially if the check occurred some time in the past.
2. I was rejected when I applied for a mortgage. Should I submit to more lenders to boost my chances?
If you have received a rejection and decide to submit more applications, remember that you will be subjected to further hard credit checks within a short time. This will lower your chances of getting a mortgage.
3. Should I apply for personal credit when applying for a mortgage?
If you plan to get a new mortgage, you’re best off doing so at least six months before (or wait until six months after) you submit your application. This will avoid any crossover or interference.
4. Should I download my credit report to see what is on there?
Yes. Viewing your credit report can give you a preliminary overview of your credit standing, and give an indication of whether you will be successful obtaining a mortgage.
5. Will a soft or hard credit check be performed when I apply for a mortgage?
The initial credit check will normally be a soft search although some lenders do perform a hard search at this point. Once you apply for a mortgage, lenders will conduct a hard credit check, which can impact your credit score.
Contact a mortgage broker today
The Mortgage Hut team provides expertise to help you assess your finances and offers tailored advice to increase your chances of remortgage approval. With access to diverse mortgage products, our advisers can guide you toward the best choices for your financial profile.
Speak to a remortgage adviser today by calling us at 02380 980304. You also email us at info@themortgagehut.net, or book an appointment through our contact form.
