Just because you're self-employed, a contractor or freelancer, it doesn't mean obtaining a mortgage is harder than someone with a set salary. With the right amount of preparation and planning, the process can be easier than you think.
Improving your credit score is not a quick fix, it’s an ongoing process.
Some of the tips below are only effective if they are actioned months ahead of applying, so ensure you do the necessary groundwork in good time.
Lenders will be checking to see if you are going to be a good customer and can make your repayments. They do this by credit scoring you, to try to predict your future behaviour, based on your past. So if your credit score is rather weak and unfit, lenders may decline your application.
10 tips to improve your credit score
- Check your credit file - Get copies of your credit file from all three credit reference agencies — Equifax, Experian and Callcredit. You can do this for free (be aware of free trial periods for use). Once you get your file, check everything for errors. If you think your file is wrong, ask the lender to correct it. You can then add a notice of correction to your file explaining why it’s unfair or how the circumstances arose. If the credit reference agency won’t help you, you can complain to the Financial Ombudsman. However, lenders also rely on your application form and their past dealings with you, which these credit files don’t contain.
- Do not miss payments/pay late - set up a direct debit to make at least the minimum repayment on credit or store cards so you never make late payments or miss them. It is even better to repay more than the minimum payments, so make manual repayments on top when you can.
- Ensure your account addresses match - check your address is up to date on all your active accounts (even if you no longer use them.)
- Never withdraw cash on a credit card - this will be specifically noted. It is frowned upon by lenders as it is an incredibly expensive way to access cash and not a good sign. To lenders, it looks as though you are desperate for cash and can’t live within your budget.
- Keep other credit applications to a minimum during the months before your mortgage application, applications, whether successful or not, go on your file, so avoid applying for anything that adds a footprint to your file (including credit like car insurance and mobile phones).
- Be on the Electoral Roll - if you are not registered, it makes life so much more difficult. Check online to see whether you are already registered and if not, register. For anyone ineligible (mainly foreign nationals), you can add a note to your credit file saying you have other proof of address or residency.
- Break with past relationships - if you've separated from someone, ensure you financially unlink too. If you have had joint finances with someone (including joint billing with a flat share) write to the credit reference agencies and ask for a notice of disassociation.
- Cancel unused credit cards - Access to too much available credit, even if it isn't used, can be a problem. If you have a range of unused credit cards and lots of available credit, it is a good idea to cancel some of them. This lowers your available credit and should help.
- Saving regularly – Use savings to pay off debts if you have them. Lenders like to see regular savings and debts being cleared, this is particularly relevant if you're applying for a mortgage.
- Avoid payday loans like the plague - Not just because their rates of interest are dreadful, but because some lenders will reject anyone who has such a loan as it indicates poor money management.