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In our younger adult years many of us take little notice of our credit history; it simply isn't top priority. It is only when we start trying to take loans, buy a car on finance, and even get a contract mobile phone, that credit history comes into play.
A mortgage is a secured loan from a lender, be it a bank or building society. When they lend to you, these institutions will want to know that you are a safe investment, and therefore will check your credit history to ensure that you have a good history of paying off what you borrow.
A poor credit history — with a missed mobile payment here or a forgotten utility bill there — could impede your ability to get a mortgage, or mean you having to take higher interest rates and pay bigger deposits.
As your deposit gets bigger, say 25% of the value of your intended property, you are likely to qualify for better mortgage rates because you have the security of the deposit on the property, meaning the lender is less likely to lose out if you default on payments. With a smaller deposit, the rates on offer may be less appealing.
In order to get a good credit history you first need to get some credit. Having no credit can actually have the same effect as having a bad credit history for some lenders. If a lender cannot see that you have been able to manage your finances adequately, through the use of credit facilities, they may not have any confidence that you can maintain your mortgage payments.
If you have a credit card, perhaps a small loan, and maybe have your mobile phones on contract, and you maintain the repayments for these credit commitments every month, you will be showing to the lender that you are financially aware, stable and responsible. You will represent a lower risk as candidate for a mortgage, and are more likely to have your application approved.
Lenders will also look at your address history as a part of their decision. If you are on the voters roll at your current address, and have been there for several years, you are likely to be a lower risk candidate for the mortgage. Essentially, lenders are looking for capacity and stability in your financial circumstances.
Different lenders, such as TSB, use different aspects of your credit history and you therefore need to ensure that you go to a lender that is appropriate for your personal and financial circumstances.
If you have good credit history, with payments up to date, having never missed a payment, you are more likely to qualify for a mortgage. Approval of the mortgage will then depend on several factors, such as the requisite deposit and your regular income.
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