Klarna, the buy now pay later lender, has started sharing its customers’ payment details with credit reference agencies, so lenders will now be able to see the history of mortgage applicants when reviewing an application.
This could have serious ramifications for those looking to apply for a mortgage and have missed payments on their Klarna account.
Some other Buy Now Pay Later providers also provide this information to credit bureaus.
While it takes about 12 months for credit reporting agencies to incorporate new data into people’s credit scores, lenders will still have access to it.
Prepare: Experts recommend taking steps to improve your credit score at least six to nine months before you apply for a mortgage
Although borrowers are unlikely to see their buy-now-pay-later history affect their overall credit report just yet, lenders have been known to look at potential borrowers’ finances under a microscope before they sign on a mortgage and will look at all the Information available. to them
In addition to this relatively new development, there are many existing things that borrowers need to know if they want to look their best when applying for a mortgage.
We outline five key steps to take before buying your first home.
1. Get your credit reports
James Jones, head of consumer affairs for credit company Experian, says there are many things you can do to get your finances in the best shape possible before you apply.
First, get your credit report from the three UK consumer credit reference agencies, Equifax, Experian and TransUnion.
Different lenders are trusted, so you want to make sure your profile with each one is as good as it can be.
This will not only give you an overview of your financial score, but also the opportunity to correct any incorrect information, such as address or full name, making things easier for lenders in the long run.
Jones says these types of bugs should only take about two weeks to fix, but the sooner you can fix them, the better. While your credit score isn’t everything, it is a significant factor in the success of an application.
Depending on when you’re thinking about applying for a mortgage, you may have time to improve your credit score.
2. Register to vote
Jones’ second tip is to make sure you’re registered to vote. Most people only join the voter register when asked before a vote, but you can contact your local council at any time to join.
Being on the registry adds 50 points to your Experian credit score, so it’s worth doing if you haven’t already.
3. Get a credit card
Third, he advises applying for a credit card. Although getting credit this way before a loan application may seem counterintuitive, building a strong payment history will improve your credit score and reassure lenders of your financial discipline.
Just be sure to allow plenty of time to build a track record, Jones warns.
“Getting out a new card a month before you apply is a real no no,” he says. ‘You don’t want it to look like you’re using credit to pay the deposit.
‘In the lead up to applying for a mortgage, you should try to put your credit history alone.
“But if you have at least 6 to 9 months to apply and use the card sensibly, that can help rather than hinder your application and, once you mature, can boost your credit score.”
Give yourself credit: Getting credit can work in your favor. If you stay on top of your payments, having a loan record is likely to improve your credit score.
Everyone knows maxing out your credit card isn’t a good approach, he continues, but he recommends keeping your balance no more than 30 percent of your card’s limit.
“It’s not a cliff, but it’s a good target to work on. Having credit but not depending on it is a great message for a potential lender,” she adds.
Akansha Nath, director of UK and Canadian partnerships at Credit Karma, agrees that 30 per cent is the right credit card balance to maintain, adding that using a little credit each month and then paying it back to time shows that you are good at managing your finances.
‘Similarly, using buy now pay later could help improve your credit score if you make sure you meet your payment deadlines. Only if you don’t keep up with the payments does it become a problem.’
4. Cut financial ties with exes
Fourth, while we don’t like to think that our personal lives are too closely tied to our financial lives, many borrowers don’t realize that their credit score can still be tied to that of a former partner.
If you and your ex had a financial relationship, such as applying for a joint account or a loan, even if they were unsuccessful, your report may be linked to theirs.
If you had a financial relationship with an ex-partner, your credit histories could be linked
If you think this may be the case, Jones suggests checking with the agencies and then applying for a financial dissociation to make sure lenders don’t look at someone else’s file in addition to yours when you apply for financing.
And if you still have a joint account, be sure to manage it under one name before you apply.
5. Stay on top of things
Fifth, it is simply good financial management. Keep an eye on your credit score, which you can access for free on credit bureau websites. In the month or so before you apply, do not run any additional credit checks. And, if possible, reduce your current debt levels. Your ability to pay off debt will encourage lenders, while building up additional credit may scare them off.
While Help to Buy ends in March of next year, with a final application deadline of October 31, time is running out for first-time buyers to get their finances in order. However, Jones says that Experian will always try to help customers take steps to improve their score, even if time is limited.
“If you’re taking steps to improve your score, you’ll see improvements in the report we provide,” he adds.
The best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.
If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.
Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.
You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.
Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.
> Compare the best mortgage deals available now
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