Missing payments is not the only thing that can give a person a low rating, however having a low score doesn’t mean they can’t get a mortgage. Money lenders use credit scores to assess someone’s financial information, and figure out if they are likely to pay the credit back.
A credit search doesn’t score the person – it highlights serious offences such as county court judgements for charges registered against them or missed repayments.
Discussing low credit scores and how to improve ratings, Mr Montlake said: “Having a low credit score won’t necessarily mean you won’t be able to get a mortgage.
“Credit scoring isn’t just about missing payments that can lead to a low credit score, it can include simple things like being on the electoral roll where you live …it’s good to be linked where you live.
“If you’ve never had any credit at all, then you probably haven’t got a credit score, or you’re likely to have a low credit score and that can be quite an issue.”
The tip he gave to people in this situation is to get a credit card. He suggested people use it sparingly to buy a few things and set up a direct debit to pay off the whole amount each month to build up the credit score, which eventually will bring up the rating because lenders can see the borrowing and repayments.
The podcasters went on to discuss other issues that can affect a credit score.
“Fraud is a big one, a lot of people when getting a mortgage, that’s the first time seeing their credit score and they see unexplained things there and someone has stolen your identity, and it’s incredible how many times this happens, and people don’t know about it. It’s important to check your report at least annually.
“If you’re financially linked to someone else but you’re now separated, their credit rating could still be affecting yours if you haven’t de-linked yourself. There’s a lot of little things that can affect your score so it’s important to keep tabs on it.”
Ms Fletcher also mentioned the rise in popularity of many sites introducing buy now, pay in instalments options when trying to purchase clothes and other homewares.
She explained people can opt to pay for things with three easy pay payments on their debit card or pay later in instalments.
She said: “I’ve always understood that mortgage lenders don’t think this is a cool idea but is this linked to your credit score or is it just part of your spending habits?”
Mr Montlake said: “If you’re not paying this straight away, you’re buying it on credit so it will add to your credit score more than likely.
“If you have lots of different things going on, such as five of these transactions, three or four credit cards and a bank loan, that’s when complications can arise.
“I would avoid them if you’re going to be in the process of applying for a mortgage in the short term. It’s just good management to make sure you have a good credit search is okay, and you have a decent credit score. If you haven’t it’s not the end of the world, don’t panic, just talk to an expert.
“Some lenders will still lend to you depending on whether they credit search, or credit score. It won’t necessarily mean you’ll pay a vastly more expensive rate.”
The expert added: “If you have serious issues, specialist lenders and brokers will help you and work together to delay buying just now but help to work to improve your credit score within 12 months.
“It’s worth looking at your credit score as having a decent credit score can help you in all walks of life.”
Checking credit scores is free to do, or there are regular services that charge a monthly fee. Ms Fletcher went on to suggest it could be well worth checking: “It’s not important, until it becomes important and it’s an issue so it’s best to stay on top of it”.