What is a credit history?

If you are looking to buy a house, your credit history is really important. It’s a record of your past behaviour with borrowing money and to a mortgage lender, that’s a significant piece of information!

Credit history is not completely the same as your credit score.

Where your credit score is a simplified number providing an instant look at your current viability for credit, your full credit report and credit history is a lot more detailed and give a prospective lender a wider understanding of who you are, and crucially, whether you make a good investment for them.

What’s in your credit report?

Your credit history isn’t simply a list of all the payments you have made and whether they were late. A full credit report stretching back six years (which is the length of time mortgage lenders like to look to) will feature the following:

Your previous addresses – knowing where you have lived and how much you have moved provides the prospective lender with some groundwork. Knowing that you are officially registered as living in the UK is important and getting an idea of who you have been for the past six years starts here. In terms of a credit report, your past addresses also allow the systems to connect you to the correct credit transactions

Your accounts – not limited to bank accounts, a full accounts list will detail any credit cards, mobile phone contracts, energy suppliers and more. Knowing about your accounts, how long you have had them, and whether you are in debit or credit with them is vital.

Your financial ties – if you have a joint account, are married or have any other reason to be financially associated with another person, then their credit history can have an impact on your suitability (for better or worse).

Your payment history – missed a credit card payment, bounced lots of direct debits or been a good regular payer? This obviously interesting information is revealed.

Serious issues – if you have had a CCJ, have been previously bankrupt or are midway through a debt management plan then these show up as serious issues on your credit history report. Some mortgage lenders will be able to see past them and offer an adjusted deal, others will not, but there’s no running from them.

Affordability – your income and your outgoings form the all-important affordability score. A fully detailed report will include an indication of your spare funds and how close to the line you play it every month. For mortgage lenders who need to know you can pay back a significant sum each month, your affordability score is a huge part of their investigation.

Why would someone have no credit history?

To not have a credit history could seem impossible – like you’ve been living on the moon for the last decade or two, but the reality is that there are many circumstances that could lead to a blank credit report:

Not registered in the UK – being registered to vote in the UK (also known as being on the ‘electoral roll’) is a legal requirement and failure to do so can lead to a fine. If you are over 16 and not registered, then your credit history will be missing vital information that can even lead to a complete lack of a report.

No fixed UK address – without an address it is hard to tie credit to you (and equally hard for you to obtain credit), so having no UK address can be a cause for a lack of credit history.

Under 18 – your credit report only starts when you become 18, so those below adulthood will not have a credit history.

Still living with parents – if someone else has been paying all your bills and keeping you then you could have had no recourse to build up a credit file. Of course, it is still possible to get credit while living with your parents, so simply remaining in the family home will not always mean no credit history.

No bills in your name – like living with parents, if you are in a situation where nothing has ever been paid in your name (shared house, for example) then you may be missing a credit report.

No bank accounts – if you’ve never opened a UK bank account, there’s a chance that you have never generated a credit footprint.

Recently moved to the UK – if you are just immigrated or returned from a very long time abroad and are yet to make an impact with UK finances then you will have no associated report.

Never been employed – some cases of missing credit history stems from a lack of registered employment in the UK. Recently released from prison – a long period serving in prison can mean any previous credit report has become defunct and a new one is yet to be built.

Too wealthy – some people simply never need to make an impact on the credit register. The Queen might find it hard to get a mortgage for this reason!

Do you need a credit rating to get a mortgage?

Why is having no credit history bad?

Without a credit history, the mortgage lender has no way to determine if you are going to be able to repay their loan. Long gone are the days when a personal relationship with a bank manager makes all the difference, and simply sitting across from a decision maker promising that you really really will pay back the mortgage is sadly not good enough!

Mortgages, even bad credit mortgages, need to have information to be properly assessed and calculated and without that data, everything becomes guess work.

Getting a mortgage with no credit history can be harder (despite you never having done anything wrong) than a no-deposit mortgage with bad credit – at least in that instance the lender has something to go on!

How to get a mortgage with no credit history

Really there are two options if you have no credit history. The first is to wait until you have built up a sufficient credit report (typically three years or so), and the other is to apply for limited credit history mortgages or to look for rare mortgage lenders that don’t credit score. At The Mortgage Hut we can help!

How to check a credit history

Under recent data regulations, you are entitled to request your full credit report from the credit reference agencies that hold it.

In the UK, the three main CRAs (Credit Reference Agencies) are Experion, Equifax and TransUnion (formally CallCredit). A fourth, Crediva, provides slightly different information that is also often used to build a full credit report.

 You can go to each of these agency’s websites directly to register and obtain your credit report for free or look to a combined service that details an overview taking into account all four reports.

Each scores slightly differently and you might not know which CRA your prospective mortgage lender favours, so it’s worth looking across the board. Regular checking your personal credit history is worthwhile and has no negative effect.

How to build a credit history

With a no credit history mortgage difficult to obtain, building your credit history to overcome the problem is the ideal way to plan for a mortgage.

 There are many techniques you can use to improve and build your credit score, many of which are out of the scope of this article but do try the following:

Make sure you are on the electoral roll – the number one, most important start!

Put household bills in your name (if possible).

Apply for small credit options first – mobile phone contracts, specialist ‘bad credit’ credit cards, bank account overdraft etc.

Always pay on time – don’t harm your credit report while you are trying to build it!

Be patient – it takes time to build your credit history, but that time will pass quickly. Plus, double up on using these months by saving for your house deposit at the same time - the more you have saved up, the better chance for a mortgage you will have at the end.

Don’t despair – come to The Mortgage Hut

At The Mortgage Hut we have specialist advisors who would like nothing more than to get you a mortgage – even if you are struggling with no credit history. While getting a mortgage with fair credit is easier, we’re not adverse to a challenge and try to make sure all our customers end up with an amazing deal at the perfect rate.

 Give us a call today or fill out our contact form to see how we can help!

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