To give yourself the best chance of getting a favourable deal when remortgaging, monitor your credit score in the lead up, so you can deal with any inconsistencies or issues. It’s a good idea to get used to doing this routinely for a healthy credit record.
Common reasons for a credit score drop
The following are some of the more common causes of a credit score drop. Some factors will have a bigger impact than others.
- Missed or late payments. If you’re more than 30 days late with a payment, credit issuers tend to report this to one or more of the three main credit bureaus: Experian, Equifax and TransUnion. Just one missed payment can have a big impact on your credit. Should your payment become 90 days late, your account could be sent to a collection agency. Details of late payments and collections can stay on your credit file for seven years.
- Increased credit utilisation. People who have the best scores typically keep their credit utilisation rate under 10%. Aim for less than 30% if this is unachievable.
- New mortgage, loan or credit card applications.
- Incorrect information from a creditor. Check for identity fraud issues and report if applicable. Or report any errors a creditor has made.
- Bankruptcy. Bankruptcy can severely affect creditworthiness, often meaning rejection by most mortgage lenders. They may also prohibit you from having a mortgage approved in the near future.
Steps to improve your credit score quickly
If you find yourself in the position where your credit score has dropped before you are about to remortgage, there are steps you can take:
- Make sure you’re paying all your bills on time. Set up direct debits or standing orders if it helps and ensure you have enough in your account to cover them.
- Avoid making big purchases in the lead up to making an application for remortgaging.
- Keep your overall debt as low as possible.
- Don’t apply for unnecessary credit cards. What you don’t have, you can’t use; so this will help with your money management.
- Monitor your credit score frequently so you can jump on anything that doesn’t look right and deal with anything that you’ve missed.
- Set a budget. And keep an eye on your spending habits.
Alternative options for securing a remortgage with a lower score
- Check your home equity and Loan to Value (LTV) ratio. It can make a difference as lenders like low-risk borrowers. If you have more equity – or a lower LTV – it makes you less risky. Less risky generally means better deals.
- Provide evidence of a stable income or any alternative incomes you have.
- Shop around and compare different lenders’ criteria.
- Limit your credit applications as these can lower your credit score.
- Consider waiting, if possible, to give you time to improve your credit score.
- Use a specialist mortgage broker with remortgage experience.
