Mortgage applications are a necessary part of the home buying process, but they can also affect your credit score. Here we discuss everything you need to know about a mortgage application credit check, including how a mortgage application affects your credit report and what you can do to minimise the impact. We'll also explain the difference between a hard and soft credit check, so you know what to expect when applying for a mortgage.
The Topics Covered in this Article Are Listed Below:
- How a Mortgage Application Impacts Your Credit Report
- How Can You Minimise the Impact of Your Mortgage Application?
- How Can You Improve Your Chances of Being Approved?
- How Much Does a Mortgage Application Affect Your Credit Score?
- Can Securing a Mortgage Open the Door to Other Credit Opportunities?
- What if You Struggle to Make the Payments After Applying?
- How Can You Restore Your Credit Score if It Has Been Affected?
- Ready to Apply for a Mortgage with Minimal Credit Risk?
How a Mortgage Application Impacts Your Credit Report
Securing a mortgage is a major life achievement and your credit score could benefit from it too. While initially taking out the loan can temporarily set your credit score back, making consistent payments on time will boost your score and improve your credit record.
The initial drop in your credit rating is often due to the fact you’ve had a necessary hard credit check. Hard credit checks are usually made during the underwriting process once you’ve submitted your full mortgage application, although some lenders will carry them out at the DIP (decision in principle) stage instead of a soft credit check.
Once you have secured your mortgage, it’s important to make payments on time and in full each month, as any missed or late payments would likely damage your credit report and impact your ability to borrow in the future.
Keep reading to find out more about the 2 different kinds of credit checks and how they can negatively impact your credit score or leave it unchanged.
Soft Credit Checks
A soft search, “soft pull” or “soft check”, might be done during the initial inquiry (DIP) stage and is usually used to assess whether the lender is likely to approve you for a mortgage, based on the information you’ve provided. Soft credit checks don’t typically impact your credit score in any way as they don’t leave a footprint that other lenders can see on your credit report.
It’s a good idea to check with your broker that the credit check at the DIP stage is soft before you proceed.
A soft check will provide the lender with the credit information they initially need to provisionally approve you for a mortgage, such as past addresses, debt and repayment records. Any serious issues will be flagged and details will be visible to the lender. Soft checks are very common, as any entity registered with credit reference agencies can run a soft check on you when they have a legitimate reason to do so. This includes companies such as banks, insurers and utility companies.
Hard Credit Checks
A hard search, sometimes referred to as a “hard pull” or “hard credit check”, is often carried out once you’ve submitted your full mortgage application. Some lenders may perform a hard credit check at the DIP stage of the process, information on which you can find out from your broker or lender.
When performing this type of search, lenders will leave a footprint on your credit profile that all future lenders can see. One hard search won't necessarily have a major impact on your credit score, but if several inquiries are performed in quick succession, known as “credit chasing”, this could negatively affect your credit score.
A hard search will provide the same information as a soft search, such as past addresses, debts and repayment records, as well as any credit issues.
The only real difference between a hard search and soft search is that a hard search leaves a footprint on your credit file and is visible to other lenders and creditors.
How Can You Minimise the Impact of Your Mortgage Application?
When applying for a mortgage, you should always be aware of the potential impact on your credit score. You can minimise the effect of a hard search.
- Go through an independent, specialist mortgage broker – a broker like John Charcol can help you find the most suitable mortgage for your circumstances, without having to apply with multiple lenders. This will reduce the number of hard searches performed and increase your chances of being approved at the same time. At John Charcol, we have access across the whole market, so we can find you the right mortgage more quickly and easily then if you look yourself
- Check that lenders are using a soft search – depending on your situation, it may be worth checking with your broker or lender that a soft search will be carried out at DIP stage, not a hard one
- Limit the number of credit applications you make - make sure you only apply for mortgages and other forms of credit when absolutely necessary, as too many applications in quick succession could have a negative effect on your credit score
- Be honest - when filling out your mortgage application, it’s important to be honest. Not only could you be prosecuted for fraud if you lie, but a hard credit check will reveal what’s on your credit record anyway, so being honest with your broker will ensure a smoother process in which you only approach a lender that can genuinely consider your application
Following these steps can minimise the effects of your mortgage application on your credit score. If you need advice on how to get a mortgage or help with an existing application, our team of expert advisers can help on 0330 433 2927.
How Can You Improve Your Chances of Being Approved?
If you’ve previously struggled to be approved for a mortgage and applied several times without success, this could have had a noticeable impact on your credit score. To ensure that you have the best chance of being accepted, it’s important to understand what lenders are looking for and how to present yourself in the best light.
Here are a few things you can do to improve your chances of approval and maintain your credit score:
- Use a mortgage broker – a mortgage broker like John Charcol can identify which lenders can consider your application, saving you from applying to unsuitable lenders. Furthermore, many adverse credit lenders only operate via intermediaries; they won’t consider an application directly from an applicant. Using a mortgage broker like John Charcol will give you access to more lenders and therefore better deals
- Save for a bigger deposit – sometimes lenders will require a larger deposit if you have bad credit. Saving more will give you access to more deals and possibly better rates
- Work on your credit score – if your credit score is holding you back from getting a mortgage, it could be worth working on improving it before applying. This could include paying off existing debts and making sure payments are up to date, as well as simple actions like registering on the electoral roll or setting up a direct debit to pay off your credit card regularly
- Don't take out additional credit – taking out additional forms of credit or loans before applying for a mortgage could affect your application and damage your credit score, so it’s best to avoid this if possible
By following these tips, you can increase your chances of being approved for a mortgage. The main thing to keep in mind is that applying for many credit products in quick succession is likely to have a damaging effect on your credit score.
How Much Does a Mortgage Application Affect Your Credit Score?
Generally speaking, one hard search won't have a huge impact on your credit score. Although it could slightly lower your score, this minor drop is only temporary. Consequently, one hard credit check shouldn’t have a large impact on your credit score or affect a lender's decision to approve you for a loan.
Can Securing a Mortgage Open the Door to Other Credit Opportunities?
In addition to being a major step towards purchasing a home, taking out a mortgage can actually be beneficial for your credit score. When correctly managed and paid on time, having a mortgage on your credit report can demonstrate to other lenders that you're responsible with your finances. This could potentially lead to better deals in the future - for example, when it becomes time to remortgage.
And, as long as you can demonstrate solid financial responsibility with your mortgage and other debts, securing additional forms of credit could also be within reach – e.g. credit cards, car finance, etc.
What if You Struggle to Make the Payments After Applying?
If you’re experiencing financial difficulties or struggling to make mortgage payments after applying, it's important that you contact your broker and/or lender as soon as possible. Lenders may be able to offer a repayment plan or provide advice on how to get back on track with payments. By talking openly about your financial circumstances, lenders are more likely to give you additional help and support. However, it's important to note that taking out a mortgage is a huge financial commitment, and you should never apply for more than you can afford to repay.
Here are some ways that your credit score can suffer if you miss payments:
Late Payments
Repeated late payments and missed payments can significantly negatively affect your credit. Even one late payment can damage your credit history. In fact, 35% of your credit score is based on your payment history, making it the most important factor in its calculation. Late payments will stay on your file for 6 years, making it harder to get other forms of credit in the future.
Foreclosure
A foreclosure is a legal process where the lender takes possession of your home if you default on mortgage payments. Foreclosures can have an extremely negative effect on your credit score and stay on your report for up to 6 years. This will make it challenging to get approved for future loans or mortgages, as lenders may be wary of lending to someone with a foreclosure on their record.
How Can You Restore Your Credit Score if It Has Been Affected?
Don't despair if your credit score has been affected by a mortgage application or repayment problems. Taking some simple steps can help get you back on track.
Here are some tips that can help rebuild your credit:
- Pay bills on time - making punctual payments is the best way to improve your score over time. Missed payments can lead to serious issues such as CCJs and debt collection, which can stay on your credit report for 6 years. Auto-payments and calendar reminders are 2 effective ways to ensure bills are paid on time
- Avoid taking out new unnecessary credit - taking out additional credit such as loans will lower your credit score due to the required credit checks
- Check credit reports - ensure all the information on your credit report is accurate and up to date. If you spot errors, make sure you correct them with the credit reference agency as soon as possible
- Set up payment arrangements - if you're struggling to make payments, contact your lender and ask them if they can come up with a repayment plan that you can afford
- Reduce credit utilisation - keep your credit utilisation - the amount of credit used compared to the amount available - low by paying off the majority of your debt before applying for new credit
- Monitor fraudulent activity - monitor your credit report regularly for any suspicious activity and alert the lender if you spot anything unusual
- Register on the electoral roll - being registered on the electoral roll can help lenders identify you and verify your address history, which is important when you're applying for a loan
By following these steps, it's possible to repair your credit score and get back on track. You may need to be patient as it can take some time for your credit score to improve, but it will be worth the effort as you'll be able to access credit at better rates when you need it.
Ready to Apply for a Mortgage with Minimal Credit Risk?
At John Charcol, we understand the importance of securing a mortgage that’s affordable, with minimal impact on your credit profile. As we are an independent, specialist mortgage broker, we can help you find the best possible mortgage deals and make sure that your credit score is protected. We are experienced in dealing with all circumstances, from first-time buyers to adverse credit history holders.
As we have access across the whole market, we know which lenders are likely to consider your mortgage application, no matter how complex your circumstances. This means that you can avoid multiple applications and prevent further damage to your credit score.
If you'd like to apply for a mortgage, contact the team at John Charcol today on 0330 433 2927 and we'll be happy to help. We look forward to helping you secure the best mortgage deal possible.
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