Getting a mortgage means undergoing a credit check
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.
How much does a mortgage affect your credit score?
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?
A soft credit check
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 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
Advice from The Mortgage Hut without impacting your credit score
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