How much does a mortgage application affect your credit score

Getting a mortgage means undergoing a credit check

Everyone understands that getting a mortgage means undergoing a credit check. Fears over bad credit stopping you from being able to get the money you need for your dream home are not uncommon, even if they are often unfounded – why not read our expert articles on mortgages with bad credit to see how The Mortgage Hut can help?

But what about the reverse? How does applying for a mortgage, and even getting a mortgage, affect your credit for the other parts of your life? This article answers those questions.

Your mortgage is going to have an impact on your credit score for many years – hopefully all for the better. Properly managing your money and paying regular bills is exactly the sort of behaviour that other lenders will want to see in the future and showing the ability to sensibly budget for your mortgage will boost your credit score considerably for years to come.

Of course, the reverse is also true and if you struggle with your mortgage for a period, it could close you down from other credit options.

Your mortgage should always be your top priority for monthly payments. It is typically your single largest outgoing, and the security of your family home is threatened if you default on your mortgage. That’s not a reason to be worried though – if you pass your mortgage application it is because the lender has professionally evaluated your affordability and money management ability and determined that you’re a good customer.

Simply having a mortgage shows other lenders that you have already passed scrutiny and come out shining – a great indicator that you’ll make a perfect investment for them too.

That’s the long term – in the short term though, the very application for a mortgage is going to have an impact. To understand that fully, we need to look at the difference between soft and hard credit checks.

What are soft credit checks and hard credit checks?

You may have heard the warning that having someone perform a credit search on you is bad for your credit score - it’s a cautious piece of advice that has put off many people from reasonably utilising their available credit.

Thankfully, it’s also not exactly true!

There are two types of credit check available to a lender, defined as ‘soft’ and ‘hard’. The soft version has absolutely no impact on your credit rating and when done appropriately, the hard version is also far from problematic.

A soft credit check

A soft inquiry on your credit has no effect on your overall rating and doesn’t require your permission to do. The details returned from a soft check are surface only – an overall score, confirmation of your address and flags (but not details) regarding any serious issues.

Not everyone can perform a soft check – they must be registered with the Credit Reference Agencies (CRAs) and show a reason for wanting to make the check, so don’t worry, your ex-boyfriend or nosy mother-in-law can’t just take a poke at your credit report without your say-so.

The places where a soft check is used are many, but include:

- Credit card companies looking to see if you are eligible for any of their offer
- Employers wanting to do a little background research
- Comparison websites offering you financial products
- Lenders pre-checking loan eligibility
- You regularly checking your own credit report

 You should never worry about a soft credit check – it’s part of life in the modern world.

A hard credit check

Hard credit inquiries can only be performed with your permission. They give the investigating company a detailed look at your credit history so they can make an informed decision regarding your application for credit. Hard credit checks during a mortgage application are inevitable and a standard part of the process.

Hard checks do have an impact on your credit score, but it’s not as much as people worry about. Think of a hard credit check like putting a cup of water into a bucket. Alone it makes very little impact – there’s no chance of a flood! Add another cup, and another, and another, however, and the bucket starts to fill. Walk away for a little while and the water will evaporate, giving you plenty of room for another cup or two. A hard credit inquiry is the same – one or two won’t look bad on your report at all, but a lot of them in a short space of time is worrying to prospective lenders because it shows desperation. ‘Why is this person applying for so much credit?’ they think, ‘they must be struggling.’

People financially struggling are not strong investments for a creditor. People confidently applying for a mortgage or other credit without being in a rush or panic, are. The key with hard credit checks is to only allow them when you need to. Don’t flippantly apply for ten credit cards in a row, go to a string of phone shops trying to get new iPhones, or put off mortgage lenders by testing your luck everywhere.

The timing of a mortgage application

Successfully applying for a mortgage can have a lot to do with appropriate timing. Learning how to avoid unnecessary hard credit checks and how to protect your credit score will pay off in the long run, giving you greater credit, which can lead to a better interest rate and mortgage offers with a superior LTV (loan to value) ratio. The following timing tips can increase your chance of a successful application. Firstly be patient. If you have recently applied for a credit card, loan or other finance contract, consider waiting three to six months with no new finance before applying for the mortgage. This is true whether the other application was successful or not!

Never apply for more than two or three things in the same month. If more than one application is refused, take the time to reflect and repair your credit a little before trying again. If you are pushing your credit to the limit (for example, you are using your overdraft and are close to the limit on credit cards etc.) then consider putting off your mortgage application for a few months to improve this. Having unused available credit is a strong indication that you are capable of handling more.

If you have recently changed circumstances, such as a new job or having moved to a new house, let that settle for three months before trying for a mortgage. Stability is important and jumping for a mortgage as soon as you believe you can afford it doesn’t look good.

Advice from The Mortgage Hut without impacting your credit score

At The Mortgage Hut we can help you understand your credit and give you advice to improve it before helping you with the final application. We’ll find the perfect deal for you and give you the advice that will offer the best chance of success.

And we will make sure there are no hard credit searches until it finally is time to make the right application – one we’re sure will be approved.

Give us a call today or fill out our contact form for more information and that next rung on the ladder!

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