Having your dreams of buying a new home being dashed by a “Decline” at the application stage is probably one of the most disheartening things that can happen in the home buying process.
The first thing you need to understand is why you have been declined. There can be many small reasons or maybe just one major reason, but whatever it will be obvious to the trained eye.
During the application process, lenders will either Credit Search or Credit Score your application. What is the difference? Well, Credit Search is purely a check of your record to see just what Credit you actually have outstanding. There are three main Credit Reference Agencies who lenders refer to, namely Experian, Equifax and Call Credit. It is quite surprising to learn that what is shown on your records may differ slightly from one provider to another, but generally the information will be the same. The amount of debt showing at any one given moment in time will usually be about 1 month out of date. In a Credit Search, the lender is primarily looking for the following:
Has all the debt been declared – an omission can lead to an automatic decline!
Has the amount of debt been declared accurately – incorrect declaration can lead to a decline.
Have all the accounts been run in good order with no late or missed payments or defaults – these can all lead to a decline.
This information can easily be obtained by contacting any of the three reference agencies and requesting your Credit File. Most now provide this facility free of charge for an initial report.
The process for Credit Scoring is a bit more mysterious! Each lender who operates a Credit Score system will have different criteria as to what they are looking for. A lender may use the information on your credit report, along with the information you provide on an application form, to give you a credit score. The lender will use this credit score to assess the risk of offering you a mortgage. Credit scores do not take account of your sex, religion, race, political beliefs, sexuality or criminal record.
So, the initial Credit Search or Credit Score could potentially trip you up. What else is waiting to catch the unwary or cause issues with an application?
You have too ‘thin’ a credit file. Basically, you have very few or possibly no credit agreements and whilst many consider this to be a good thing, can actually be a hinderance when applying for a mortgage. Lenders like to see some evidence of your ability to repay a debt.
Not registered on the electoral roll. Electoral roll information helps lenders prove that you are who you in fact say you are and thus helps to avoid identity fraud.
Financial Associations – This is often an issue where a couple have split up. If you are associated financially with someone who has a history of impaired credit or bad debt, this can affect your ability to secure a mortgage.
Pay Day Loans – Just don’t! Lenders do not like them and having even just one Pay Day loan paid back promptly can destroy your ability to get a mortgage through some of the big High Street Lenders. What is the issue? It is perceived that you have not been able to manage your income correctly therefore you are a greater risk for a future default.
So, what can you do to prevent the embarrassment of that decline?
ALWAYS speak to an experienced Mortgage Professional who will look at your circumstances in detail before speaking with any lender and putting a potential dent on your Credit Profile!
I always request that my clients obtain a copy of their Credit Files for our first meeting together with Bank Statements, pay slips and other relevant documentation. We look carefully at your circumstances and will advise if we think there may be issues for you and will always take the time to speak about your case with lenders to ascertain if we can find a way forward for you.