Guide

How to understand your credit report before applying for a mortgage

Your credit report is one of the most important documents in a mortgage application. Lenders use it to assess how reliably you have managed financial commitments in the past and to form a view about the risk of lending to you in the future.

Most people have never looked at their credit report properly. They may have a rough sense that their credit is "fine" or "not great," but without seeing the actual data, it is impossible to know what a lender will find, or whether there is anything to address before you apply.

Checking your credit report before you apply for a mortgage is one of the most practical things you can do. This article explains what to look for, how to access your report, and what the information actually means.

Where to get your credit report

There are three main credit reference agencies in the UK: Experian, Equifax, and TransUnion. Each lender uses at least one of these agencies, and often more than one, when assessing an application.

You can access your credit report from each agency for free:

• Experian: free statutory report available directly, with more detailed access through their paid Credit Expert service or through the free MoneySavingExpert Credit Club.
• Equifax: free access through ClearScore, which pulls your Equifax data.
• TransUnion: free access through Credit Karma, which uses TransUnion data.

It is worth checking all three, because different lenders use different agencies and the information held by each can vary. An error on one agency's file may not appear on another, but if a lender uses that agency, it will affect your application.

What is in your credit report?

Your credit report contains a detailed record of your financial history. The main sections are as follows.

• Personal information. Your name, date of birth, current and previous addresses. This sounds basic, but errors here, particularly an address linked to someone else, can create confusion in lender assessments. Check that this information is accurate and up to date.
• Electoral roll. Whether you are registered to vote at your current address. Lenders use this as a basic indicator of residential stability. If you are not registered, register now. It is free and takes a few minutes.
• Credit accounts. A record of all your current and historical credit accounts: credit cards, loans, mortgages, car finance, overdrafts, mobile phone contracts on credit. Each account shows the credit limit or original balance, the current balance, the payment history month by month, and whether the account is up to date, in arrears, defaulted, or settled.
• Public records. County Court Judgements (CCJs), bankruptcies, Individual Voluntary Arrangements (IVAs), and debt relief orders. These are significant negative entries that have a substantial impact on your ability to obtain credit.
• Financial associations. Any individual you are linked to financially, most commonly a joint account or a joint mortgage. Their credit history can affect your application.
• Searches. A record of hard credit searches, applications for credit that have left a mark on your file. Multiple searches in a short period can concern lenders.

What lenders actually look at

When a lender reviews your credit file, they are looking at several things.

• Payment history. This is the most important factor. A consistent record of making payments on time across all your accounts is a strong positive signal. A pattern of late or missed payments, even on minor accounts, raises concern.
• Recency. How recent are any negative entries? A missed payment from five years ago carries less weight than one from three months ago. A CCJ discharged four years ago is very different from one issued last month. Lenders care significantly about recency.
• Outstanding balances and utilisation. How much of your available credit are you using? High utilisation, using a large proportion of your credit card limit, for example, is a negative signal even if all payments are made on time. Reducing balances before applying can improve how you are assessed.
• Account age and credit mix. A longer credit history with a range of account types is generally viewed positively. Thin credit files, where there are few or no accounts, make it harder for lenders to assess you, even if there is nothing negative on the file.

What to look for, and what to fix

When you review your credit report, check the following.

• Accuracy of personal information. Make sure your name, date of birth, and addresses are correct. Any discrepancies should be queried with the agency.
• Accuracy of account information. Check each account listed. Look for any accounts you do not recognise, which could indicate fraud or an administrative error. Check that payment histories are accurate. If an account shows missed payments that you do not believe occurred, or shows a balance as outstanding when it was settled, raise a dispute with the agency.
• Financial associations. If you are linked to someone with a poor credit history, an ex-partner, a family member, and the financial relationship has ended, you can apply to have the financial association removed. This is called a notice of disassociation and is available if you no longer have any active joint financial products with that person.
• Old accounts you have forgotten about. A closed account with a small balance that went unpaid years ago can still appear as a default or arrears. These are worth finding and resolving where possible, even if the debt is old.

Errors take time to resolve, sometimes weeks. If you are planning to apply for a mortgage in the next three to six months, review your report now rather than leaving it until you are ready to apply.

How to improve your credit score before applying

If your report reveals issues, there are practical steps you can take.

• Register on the electoral roll at your current address. This is one of the fastest and easiest improvements available and is often overlooked by renters.
• Pay down credit card balances. Reducing your utilisation ratio, the proportion of your available credit that you are using, has a positive impact. Aim to keep each card below 30% utilisation if possible.
• Make all payments on time, every time. This sounds obvious, but setting up direct debits for minimum payments ensures nothing is missed even in a busy month.
• Avoid new credit applications in the run-up to your mortgage. Each application creates a hard search. Multiple searches in a short period can concern lenders.
• Do not close old accounts unnecessarily. The age of your credit history is a positive factor. Closing long-standing accounts can shorten your average account age, which has a marginal negative effect.
• Allow time for improvements to show. Credit file improvements do not happen instantly. Negative information remains for six years, though its impact diminishes over time. Positive changes, like paying down a balance or maintaining a clean payment record, take a few months to be reflected meaningfully.

Soft searches vs hard searches

When you check your own credit report, this is a soft search: it is not visible to lenders and does not affect your score. Check your report as often as you like.

When a lender runs a check as part of a credit application, this is typically a hard search. Hard searches are visible to other lenders and multiple searches in a short period can have a negative impact.

When getting an Agreement in Principle, many lenders now offer the option of a soft search at this stage. Always check which type of search will be carried out before agreeing to an AIP, a mortgage adviser can tell you which lenders use soft searches at this stage.

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This article is for informational purposes only and does not constitute financial advice. Always speak to a qualified mortgage adviser before making decisions about borrowing.