Property News

Most people understand that credit scores have some part to play in property purchases that require a mortgage. However, they may be hazy on exactly why their credit score matters. They may also be uncertain about how to check it and, where necessary, improve it. How long a credit score takes to show signs of improvement is another common point of confusion. We take a closer look at credit records throughout adulthood and at particular considerations for different ages and stages of life.

No matter your age or stage of life, once you hit adulthood, your credit score matters. Every mobile phone contract you want to take out, hire purchase agreement you want to enter into, and loan or mortgage application you want to make depends on it. You may even find that something as apparently simple as having milk delivered to your doorstep depends on passing a credit check.

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Credit reference agencies: the basics
Credit records are held by three main credit reference agencies: Equifax, Experian and TransUnion. Each of them has an obligation to provide you with a free copy of your credit report every year. Credit scores tend to vary between the agencies so it is sensible to monitor your file at all three of them. Make sure you dispute any negative marks and ask for incorrect information to be removed.


Young adults
It's a generalisation but probably fair to the majority to say that most young adults have other things on their mind aside from their credit report. A-level results, apprenticeships, university places, travelling and learning to drive are more likely to take centre stage. However, each of these very significant events is, in its own way, an important step on the way to life as an independent adult. And independent living, particularly for anyone who wants to rent or buy their own home, depends on building a secure financial foundation.

Ideally, no young person will reach adulthood without having received a basic financial education from their parents or guardians. Pocket money and allowances, and access to some form of savings account and a current account help enormously with financial literacy. Those young people who have earned some of their own money via babysitting, waitressing or other part time work tend to be even better equipped to manage their own money and make sensible choices. However, even for those who have not benefited in this way, a number of financial education outreach programmes operate across the UK, often targeting children and young people via schools, youth clubs and universities.

Opening a current account at a bank or building society is the crucial first step towards financial independence and a good credit rating. Many young adults are also keen to take out a mobile phone contract in their own name (below the age of 18, young people are restricted to pay-as-you-go deals or asking an adult to take out a contract). A mobile phone contract represents an excellent further step towards building a credit record although it is, of course, important to ensure the monthly payments are made on time.


Twenty and thirty-somethings
Although further and higher education may take up a considerable chunk of one's 20s, it is during these decades that many people start to consider their future as a potential homeowner. While home ownership rates among 16-34 year olds remain low, this is the time when firming up the foundation that will make possible a future mortgage is essential.

Sold property prices can seem insurmountable and high rents and zero hours contracts or temporary, low paid work may pose an impediment to saving for that all-important deposit, but ensuring that:

- bills are paid on time and in full
- you are registered to vote
- you make regular checks of your credit files for anomalies, inconsistencies and errors

are simple ways to ensure that your credit rating is as good as possible.

For those who have no history of using credit, taking out a credit card can be a useful way of demonstrating to future potential lenders that you are sensible and cautious when it comes to borrowing. If you are considering this option, it is prudent to keep your borrowing within a third of your total credit allowance and to repay the balance in full every month. If you can't always manage the latter, at least make sure that you make the monthly minimum payment on time. Even a single late or missed payment can damage your credit rating. Setting up a direct debit helps ensure that these payments are not missed.


Mid-life
This is a stage of life when those people who have already bought property may look to move up the ladder to accommodate a growing family. For others, it may represent their first chance to buy. Regardless of your position on the property ladder, your ability to move onto or up it is likely to depend on your other financial commitments, which can be considerable. As ever, ensuring that payments are made on time (and, preferably, in full) is crucial. Paying down outstanding balances can pay dividends in terms of boosting your credit rating. However, an alternative, which should always be used with caution is to expand your available credit. Ideally, you should not use this additional credit or, if you do, you should pay it off in full every month. Whatever you do, remember that maxing out your credit facilities will almost always damage your score. If you have to choose which credit account to pay down first, pick the one with the highest interest. After this, pay off the newest accounts first. For more information on managing credit payments, google "debt snowball".

If you can ensure that your outstanding credit liabilities are kept firmly in check, you should be in a better position to buy a new property. Inevitably, already owning a home - provided it is not in negative equity - should help you move up the ladder, even if local sold property prices have not increased that much.


Retirement and beyond
If downsizing is on the cards and a mortgage is no longer needed, it can be tempting to assume that credit scores are a faff that is now largely behind you. However, no matter how old you are, it is imperative to remain aware of the risk and ramifications of ID fraud. Regular monitoring of your credit records can provide an important "heads up" of possible problems.