Are you Creditworthy?
If you are deemed to be 'uncreditworthy' your choice of mortgage lender will be severely restricted. Indeed, it may not be possible to borrow money at all. Mortgage lenders will determine whether you are creditworthy in one of three ways.
Credit Scoring
Credit scoring is the process by which a mortgage lender looks back at all its previous cases and tries to identify the factors that make people statistically more likely to default on their loans. It then designs a process in which points are deducted if certain features apply to them.
For example, the lenders' research might show that people who are self-employed are statistically twice as likely to default on their loans as people who are employed. Accordingly self-employed applicants would lose 20 marks from their credit score. Further research might show that people who are less than 25 years old are statistically three times more likely to default on their loans than older people.
Accordingly applicants who are less than 25 years would lose 30 marks from their credit score.
Point-scoring
Each mortgage lender has its own credit scoring process and each deducts marks for different criteria. However, generally speaking you will lose points if you:
- are self-employed;
- have changed jobs recently;
- have an unstable employment record (ie you have changed jobs frequently)
- have moved home recently or often;
- are not on the electoral register;
- have never had a mortgage or any other loan;
- are single or cohabiting with a partner.
If your total credit score falls below a certain level, the lender will decline your mortgage application.
Credit scoring is a crude and sometimes unfair process. From time to time stories appear in the press about someone who earns a million pounds a year but was refused a small mortgage because he has just changed his job and moved house. But despite these occasional glitches, credit scoring is a cheap and, statistically speaking, fairly accurate way to assess how likely an applicant is to default on their mortgage payments and it seems likely that most mortgage lenders will continue to use it.
Using a mortgage broker
A good mortgage broker should be able to warn you about whether your personal circumstances make you likely to fail a credit scoring test. They should advise you on what action to take to avoid your application being rejected.
