When you apply for a mortgage or any form of credit ( credit card / personal loan etc ) the provider will always check your credit history – they do this by doing a credit search on your name and addresses which cover your financial history for the last six years.
Credit Reference Agencies ( CRA )
Each Credit Reference Agency is sent information by lenders about the credit you have and how you manage it. Other information, such as public records like the electoral roll, are also sent to the CRAs and form part of your credit report. Once a CRA has enough information on you, they will generate your credit report and calculate your credit score.
There are 3 main Credit Reference Agencies – Equifax, Experian & Transunion and each Agency will produce a personal credit score but as the Agencies record your information in different ways and produce scores out of either 700, 710 or 999 your credit score can differ.
Your Credit History
The way you have conducted your finances over the last 6 years will determine if lenders are willing to lend to you and if so at what interest rates.
Clean Credit History
This normally means that you have paid all your outstanding credit on time and is normally shown on your report as green ticks and all lenders would be willing to lend to you at their lowest rates with the smallest deposit required.
Late payments & Missed Payments
A late payment is when a payment should have been made say on the 1st of the month but is not made on that date but is then paid later in that month – depending on how this is shown on your report it may not effect your credit history.
A missed payment is when a payment is not made at all for that month – this will show on your report as a 1 – if the next months payment is made on time the report shows a green tick – however if the next months payments is missed it will show as a 2 and if this continues for the following four months would show as 3, 4, 5 & 6 on your report.
Missed payments will effect your credit score and reduce the number of lenders willing to lend to you and may also mean you may only be offered higher interest rates and you will also need a bigger deposit.
Defaults & County Court Judgements ( CCJ’s )
As you miss more and more payments providers will contact you to try and sort matters out but if you are unable to pay or ignore them they will a Default on your credit file – this shows other providers / lenders that you have failed to meet this financial obligation and will show on your file the provider, amount and date of default .
Some providers will apply to the County Court for repayment of the debt – this is known as a CCJ where the Court issues papers with the provider / lender looking to recoup the funds owed which can include bailiffs calling round to your property seeking to obtain goods to cover the debt or the Courts requesting having money deducted from your wages.
Again if you pay a CCJ in full within 28 days of it being registered it can be removed from your credit file otherwise it will remain on your file for 6 years.
Even if payment is made to repay any Default or CCJ after 28 days if will still show on your credit file for 6 years but will be marked as Satisfied – however, this will still effect your credit file.
Defaults & CCJ’s greatly effect your credit file and will reduce the lenders available and attract higher interest rates payable and the need for larger deposits being required.
Debt Management Plans ( DMP’s ) & Individual Voluntary Arrangements ( IVA’s ) & Bankruptcy
There are a few specialist lenders who will lend if you are in a Debt Management Plan – again the interest rates offered will be high and the amount of deposit required greater.
Lenders usually require that IVA ‘s & Bankruptcy have been discharged for 6 years before they are willing to lend.
Usually the Payday Loan has to have been repaid and taken more than 12 months before applying for mortgage.
Your credit file and credit history will determine the lenders available to you and the amount of mortgage offered and the deposit required – in these challenging times lenders are currently changing their criteria on a daily basis.