How to build up my credit score for a mortgage ?

Hi,

I'm new here so I hope I'm posting this in the correct section. :blush:

I'm planing on getting a mortgage on a house in a couple of years, however, to get to that stage I will need to build up higher credit score from my understading as the higher the credit score, the bigger mortgage I can get. I was doing some research about Klarna as it's offered nearly everywhere within UK if you want to pay for something in a monthly installments and it doesn't seem to build up any credit score.

What's worse is that I have heard various stories about people being denied a mortgage because they were denied monthly installment for Klarna online years before, however, how can that be if you don't get past the first couple of general questions like your email address and full name ? Everyone can have that details and pretend to be you. I have also heard that to get a higher credit score, it's good to buy something for a monthly installments and like two or three months before pay it completely off, is this true ?

As you can see, I'm completely new in all this and will appreciate all the advice here. Also, yes, I'm aware of not taking things that either are not needed or I can't pay them off right here and there as well as staying away from getting on a negative balance.

Any advice is appreciated.

Thanks

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Comments

  • [Deleted User]
    [Deleted User] Posts: 35,242
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    edited 29 October 2021 at 1:35PM
    Your credit score isn't a real thing in the UK and not used for any sort of borrowing. The scores provided by CRA are just gimmicks provided for entertainment only. You'll be assessed by lenders on your credit history and circumstances.

    You need to build some history, but not with the likes of Klarna, which can suggest to lenders you have no disposable income and are higher risk.

    Try to get a credit card from your bank. Use it and clear in full each month once you get the statement. Repeat ad nauseam. Time will do the rest.


  • Thrugelmir
    Thrugelmir Posts: 89,546
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    edited 29 October 2021 at 1:46PM
    Focus on saving for the deposit and clearing any outstanding debt. Ensure that you are on the electoral roll. 
  • MaryNB
    MaryNB Posts: 2,319
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    edited 29 October 2021 at 1:59PM
    Keep on eye your credit reports - all three. A lender can look at any of them.

    Free access:
    Experian - use MSE credit club
    Equifax - use Clearscore
    Transunion - use Credit Karma

    In addition to recommendations in the posts above, avoid using an overdraft regularly. It's only supposed to be for emergency use. For regular credit you should use a credit card not overdraft. Keep your credit card usage to about 30% of your limit. Don't touch pay day loans. Make sure you have direct debits so you never miss a payment. The odd missed payment won't be catastrophic but if you default that is very bad. Avoid opening credit accounts in the months leading up to your mortgage application.
  • Thanks for replying ! When I made account I was a bit confused if this was correct website to make account as I didn't knew if it was US or UK based forum, I presume it's UK one based on the news section.

    So in short, just avoid Klarna, get a Credit Card and pay it this way ? Sounds good. 

    Use it and clear in full each month once you get the statement.
    I'm a bit confused here, when you say to clear it in full what do you mean and some sort of example would be useful here. Also, I presume the more things I pay for on a monthly basis from that Credit Card, the better history that would improve my chances of getting a good mortgage ?

    So, if Credit Score is not a thing in UK, why do we have so many ads for things like Clear Score for checking our Credit Scores ? I'm a bit confused because I haven't been involved much with stuff like this or financial things for this matter before and this is my first time doing so. Also, does lenders have insight how much you have used with Klarna ?

    What also doesn't make sense to me is that from the looks of things, there are no real benefits by using Klarna or similar companies but they are heavily advertised on many websites. How does lenders check when it comes to Klarna ? I have used their service a couple of times previously so this doesn't sound good. I thought that by using Klarna, I would increase my credit score so I have used them a few times.
  • [Deleted User]
    [Deleted User] Posts: 35,242
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    You just pay for the things you would buy anyway on your credit cad and clear in full. You don't buy as much as you can.

    There are lots of ads for things like Clearscore because they want to drive traffic to their sites. Scores are provided as they attract people, in the same way as horoscopes. They have no meaning but people like to check them. Use the CRAs for their real purpose - to check the data that is held on you.

    Lenders will look at your files and see the types of borrowing you have. Revolving small sums, such as the ways in which Klarna are used, tend to give the impression you're sailing close to the edge. Most people don't need to use credit to buy a £10 pair of jeans from Boohoo. 
  • sourcrates
    sourcrates Posts: 28,722
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    Your credit score is mainly a marketing tool used by the CRA`s to sell you credit improvement products, such as high interest credit cards or loans, which is why the likes of Credit Karma are credit brokers, the score they produce is seen only by you, no one else.

    When a lender assesses you for credit, they use their own internal scoring system, that no one else is privy to.

    Every lender has there own qualifying criteria, again, that no one else is privy to.

    There are no secrets to obtaining credit, you need a stable address history, be registered on the electoral role, not have any late payments/defaults/ CCJ`s/Bankruptcies/IVA/DRO etc on your file, have sufficient an income to warrant the credit you are applying for, not be over committed financially, and you must be able to afford the repayments.

    For a mortgage you will probably need a good sized deposit, if your credit history is not that good, then using a broker might help, basically if you want to make yourself look good to lenders, apart from the things I have already mentioned, having a credit card that you put your monthly/weekly shopping on for example, then pay the balance off by the due date, in full, thus paying no interest, is a good way to use a credit card, have it working for you instead of the other way around.
    I’m a Forum Ambassador and I support the Forum Team on the Debt free wannabe, Credit file and ratings, and Bankruptcy and living with it boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.For free non-judgemental debt advice, contact either Stepchange, National Debtline, or CitizensAdviceBureaux.Link to SOA Calculator- https://www.stoozing.com/soa.php The "provit letter" is here-https://forums.moneysavingexpert.com/discussion/2607247/letter-when-you-know-nothing-about-about-the-debt-aka-prove-it-letter
  • Ebe_Scrooge
    Ebe_Scrooge Posts: 7,320
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    New_Power said:

    Use it and clear in full each month once you get the statement.
    I'm a bit confused here, when you say to clear it in full what do you mean and some sort of example would be useful here.
    To reiterate what has already been said, your credit score means absolutely nothing, it's not even seen by a potential lender (despite what numerous adverts may lead you to believe).  What counts is your credit history - you need to show a solid history of responsible borrowing and repayment.
    A credit card is one of the simplest ways of achieving this.  You use it to buy things you already buy, things you need to buy anyway - the weekly food shop, petrol for your car, whatever.  Each month you receive a statement showing what you've spent that month.  You then pay the full statement amount in full.  That's it, really.
    You'll see different cards have different interest rates (APR).  This is what you'll be charged if you don't pay in full.  If you've never had a credit card before, it's likely that you'll only be able to get one, initially, that has a high APR.  But that doesn't matter - so long as you pay every statement in full when it arrives, you'll be charged zero interest.  And since your primary aim is to build up a favourable history, you absolutely do need to be paying in full every month, quite aside from any interest considerations.
    You ask for an example.  OK, let's say you currently go to the supermarket once a week to do your food shopping.  You spend £75 each shop, and usually pay in cash or with your debit card.  What you do is pay using your credit card instead.  At the end of the month, a credit card bill pops through your letter-box, and says you owe £300 (4 weeks of shopping at £75 a time).  You pay the full £300 back to the credit card company, job done.  It's cost you nothing, and you've earned a nice green tick on your credit report.
    Of course, this does mean you need to be a little bit disciplined.  When you do your weekly food shop, you need to think to yourself "I'm going to have to pay for that at the end of the month", and don't just fritter the money away elsewhere.  And don't, whatever you do, think "Wow, I've got a £2000 credit limit, I can treat myself to a shiny new TV".  Used sensibly, a credit card is a simple and very useful way of building up a good credit history, but you do need to understand how they work.
    Hope this helps.

  • phillw
    phillw Posts: 5,593
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    New_Power said:
    What's worse is that I have heard various stories about people being denied a mortgage because they were denied monthly installment for Klarna online years before, however, how can that be if you don't get past the first couple of general questions like your email address and full name ?
    That sounds made up.

  • elsien
    elsien Posts: 32,522
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    Any mortgage offer will be based on your deposit, your salary, your  affordability (existing outgoings, bills and any debts) and how well the bank can see you’ve managed your money in the past.

    They will be looking at missed or late payments, and any signs that you’ve been struggling with paying anything.
    Not a random number from a credit reference agency. 
    So things like a responsibly used credit card, mobile phone contract etc which are all paid on time and up to date will help evidence that you are financially secure. 
    All shall be well, and all shall be well, and all manner of things shall be well.

    Pedant alert - it's could have, not could of.
  • TELLIT01
    TELLIT01 Posts: 16,372
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    Your credit score isn't a real thing in the UK and not used for any sort of borrowing. The scores provided by CRA are just gimmicks provided for entertainment only. You'll be assessed by lenders on your credit history and circumstances.

    You need to build some history, but not with the likes of Klarna, which can suggest to lenders you have no disposable income and are higher risk.

    Try to get a credit card from your bank. Use it and clear in full each month once you get the statement. Repeat ad nauseam. Time will do the rest.


    Really?!  My niece is in the process of selling her house and the purchasers thought they had a mortgage offer in place.  However, their lenders told them that, because they hadn't taken out a mortgage within 6 months of the offer, they would have to recalculate their rating.  The purchaser was shocked to be told that their rating had been reduced because the previous offer had expired.  That would certainly suggest that credit rating are very much a real thing.

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