Buy-now-pay-later lender Klarna has begun sharing its customers’ payment data with credit reference agencies, so lenders will now be able to see mortgage applicant history when reviewing an application.
This could have serious ramifications for those who are looking to apply for a mortgage and have late payments on their Klarna account.
Some other buy now pay later providers provide this information to credit agencies.
While credit reference agencies need about 12 months to incorporate the new data into individuals’ credit scores, lenders will still have access to it.
Prepare: Experts recommend taking steps to improve your credit score at least six to nine months before you apply for a mortgage
Although borrowers are not likely to see a buy now pay later date affecting their overall credit report yet, lenders have been known to put potential borrowers’ finances under a microscope before they sign a mortgage and will take a look at all information available to them.
In addition to this relatively new development, there are a lot of current things that borrowers need to know if they want to present themselves in the best light when applying for a mortgage.
We outline five key steps to take before buying your first home.
1. Get your credit reports
There are a lot of things you can do to get your money in the best condition possible before you place an order, says James Jones, president of consumer affairs at the credit company Experian.
First, get your credit report from all three UK consumer credit reference agencies, Equifax, Experian and TransUnion.
Lenders are based on different lenders and so you want to make sure that your profile with each of them is as good as possible.
Not only will this give you an overview of your financial score, but it also gives you a chance to correct any wrong information such as an address or full name, making it easier for lenders in the long run.
Jones says these types of errors should only take about two weeks to fix, but the earlier you can sort them out the better. While your credit score isn’t everything, it is an important factor in the success of the application.
Depending on when you consider filing your mortgage application, you may have time to improve your credit score.
2. Register to vote
Jones’ second tip is to make sure you’re registered to vote. Most people only join the electoral register when told to do so before they vote, but you can contact your local council at any time to join.
Signing up for the registry adds 50 points to your Experian credit score, so it’s worth doing if you haven’t already.
3. Get a credit card
Thirdly, it is advised to apply for a credit card. Although obtaining credit this way before applying for a loan may seem counterintuitive, building a solid repayment history will boost your credit score and reassure lenders of your financial discipline.
Just make sure you leave enough time to build a track record, warns Jones.
“Getting a new card a month before you apply is a real no-no,” he says. You don’t want to look like you’re using credit to pay the deposit.
In the lead-up to applying for a mortgage, you should try to leave your credit history alone.
“But if you have at least 6 to 9 months to apply, and you’re using the card sensibly, it can help rather than hinder your application, and once it matures, it can give your credit score a boost.”
Give yourself credit: Getting credit can work in your favour. If you keep making your payments, having a history of borrowing is likely to improve your credit score
Everyone knows that maxing out your credit card isn’t a good way to go, he continues, but he recommends keeping your balance no more than 30 percent of your card limit.
It’s not the edge of a cliff, but it’s a good goal to work towards. Getting credit without relying on it is a great message to a potential lender.
Akansha Nath, Head of Partnerships UK and Canada at Credit Karma, agrees that 30 percent is an appropriate credit card balance to keep, adding that using up some credit each month and then paying it off on time shows you’re good at managing your money.
Likewise, using buy now pay later can help boost your credit score if you make sure you meet your repayment deadlines. Only if you fail to keep up with the shots does it become a problem.
4. Severing financial ties with former partners
Fourth, while we don’t like to think that our personal lives play too closely with our financial lives, many borrowers don’t realize that their credit score may still be tied to an ex.
If you and your ex had a financial relationship, such as applying for a joint account or loan, even if it didn’t work out, your report may be related to their relationship.
If you had a financial relationship with an ex, your credit history can be linked
If you think this might be the case, Jones suggests checking with the agencies and then asking for a financial breakdown to make sure lenders aren’t looking at someone else’s file in addition to yours when applying for financing.
And if you still have a joint account, make sure you manage it under one name before placing your order.
5. Stay on top of things
Fifth, it is simply good financial measure. Monitor your credit score, which you can access for free on credit agency websites. In the month or so before applying, do not run any additional credit checks. And if possible, reduce current borrowing levels. Your ability to pay off debt will encourage lenders, while accumulating additional credit may scare them away.
As Help to Buy expires in March next year, with the deadline for submissions being October 31, hopeful first-time buyers are running out of money to get their finances in order. However, Jones says Experian will always try to help customers take steps to improve their score even if time is limited.
“If you are taking steps to improve your score, you will see improvements in the report we provide,” he adds.
Best mortgage rates and how to find them
Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with an independent, no-fee L&C broker.
The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.
You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.
Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.
> Compare the best mortgage deals available now
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