Improving your credit rating

Q My partner and I want to buy our first home. We started the process of looking into this last year, thinking that it would be relatively straightforward once we had our deposit saved.

We both have good jobs and assumed we had no debt. I then did a check of my credit file and realised O2 had slapped a default on it for £10 owed at the end of a contract. I have disputed this endlessly but it is unwilling to remove it, as it sent a text to my phone informing me of the debt – a phone which I no longer have. Anyway, I paid the debt collection company which O2 used.

The default is marked settled on 8 June this year. We are hoping to move sometime after summer next year. Do you think we have any chance of a joint mortgage with this default being so recent? I don’t want to risk tarnishing our credit files further. Do you think it would be better going for a cheaper property in only my partner’s name? EG

A Yes, I do think you have a chance of getting a joint mortgage after next summer, so I don’t think it is necessary to go for a cheaper property in your partner’s sole name.

You are right in thinking that defaults on a credit file, which stay on it for six years, are one of the most common reasons for mainstream high-street lenders to refuse mortgage applications as they generally prefer to lend to people with squeaky clean credit records. However, there are an increasing number of lenders which are happy to approve mortgage applicants with all sorts of defaults on their files.

You are also right in thinking that the longer a default has been on your credit record the lower the impact it will have on your ability to obtain a mortgage. Lenders are most interested in your recent credit activity, so if you have a default, even if it was registered in the past couple of years, you should be able to find a mortgage.

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It is worth stressing that it is the date the default was registered that matters to lenders and not the date you paid it off. It is also worth noting that the type of default is important too. If you have defaulted on a mortgage or other secured loan you are likely to be turned down whenever the default was registered. However, a default on unsecured debt such as a credit card or mobile phone contract is less worrying to lenders. Some lenders ignore mobile phone defaults altogether.

The problem is knowing which lenders will be willing to lend to you, so it would be a good idea to use a mortgage adviser which specialises in default mortgages. Applying for multiple mortgages because you keep being turned down can have a detrimental effect on your credit record, because each time you apply for a mortgage (or other credit) it is recorded in your report. Lots of applications over a short period of time make you look high risk to many lenders.

Another thing you can do is to ask the credit reference agency to let you add a 200-word “notice of correction” to your credit file explaining why you think the information shouldn’t be there or how it came about – ie, how you never got the text warning you about the default and so were unable to settle the debt before the date the default was registered.

[“Source-timesofindia”]