After years of saving for a deposit, months of hunting for the dream home and countless hours spent searching for the perfect mortgage, there is still one major hurdle to get over in the quest for homeownership - a good credit history. However, it seems that too many would-be buyers in the UK are underestimating this crucial aspect, which means they could be disappointed when they sit down to make a mortgage application.
One of the main problems seems to be that many people falsely believe that they have a decent credit history. According to Experian's research, 75% of would-be buyers surveyed said that they believed their credit rating was either 'good' or 'excellent', but when investigated more closely the picture was less rosy.
The research found that a quarter (27%) of those questioned had one or more missed payments on their credit report, while another 9% had defaults. A further 5% even had court judgements or insolvencies listed. Such things are likely to ring alarm bells with lenders, even if they turn out to be in error, which is why it's so important to check your credit report and challenge any errors.
Experian's research also found that first-time buyers were particularly weak when it came to borrowing credit and paying it off. Potential first-time homeowners are more than twice as likely to make only the minimum repayments on their credit cards and are very unlikely to clear the balance. Many of those questioned also revealed that they had increased their borrowing, with 29% borrowing more on credit and store cards in the last 12 months.
All of these factors could raise red flags with lenders. Meeting just minimum payments could be interpreted as a sign of financial stress, while taking on additional borrowing could worry lenders that you'll over-extend yourself by adding a mortgage to your debt burden.
Many lenders would want to wait and see if you could handle your increased debts before agreeing to grant a mortgage - they're required to thoroughly assess what you can reasonably afford to borrow and often have strict lending criteria, and even something as simple as a single missed payment could be the difference between being accepted or declined.
Unfortunately, the issue could be compounded by the fact that many people are completely unaware that their credit score is less than stellar until they actually apply for a mortgage. Figures from Vanquis show that, of the one in five respondents who admitted they'd been declined credit, one in 10 had been denied a mortgage, with an additional one in 10 only realising their poor credit score when they were turned down.
Given that 43% had never checked their credit score, it's perhaps little wonder that so many were oblivious to their questionnable credentials, and it clearly highlights the need for borrowers to become more informed if they're to take that first step on the housing ladder.
If you're hoping to climb onto the property ladder, you need to take action. Not only do you need to be aware of your credit rating, but you also have to take steps to make sure that your record is as good as it can be.
Try our mortgage calculator
Compare credit check providers
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.