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Buying a house? How applying for other credit could harm your application

When you apply for a mortgage, as well as checking if you can afford repayments, one of the key considerations for lenders will be your credit history. 

A credit report gives lenders an idea of whether you are likely to repay a loan or not. If they don’t like what they see, they won’t lend you the money. So it’s a good idea to do everything you can to protect it.

There are many different ways to improve your credit rating but the easiest way to make sure you don’t damage your rating is to avoid applying for more credit.

Why you should be careful what credit you apply for

Each time you apply for credit, a “footprint” is left on your report for other companies to see when you later ask them for credit. Even if you are successful, too many of these footprints in a short period can suggest desperation or that you are taking on too much borrowing. These can be a red flag to lenders.

This could make them view you as a risk and turn down your mortgage application. In turn, that rejection would make it more difficult to get a mortgage elsewhere.

There’s no hard and fast rule that says how many applications is too many, and how long you should leave before applying for credit again. But all checks disappear from your report after 12 months. It’s also likely that lenders won’t pay too much attention to searches over six months old.

Of course, none of the credit checks listed below will necessarily result in you getting turned down, and some have less impact that others. As a rule of thumb being careful about what credit applications you make could help your chances of getting a mortgage.

Where you might be credit checked

Surprisingly, there are quite a few less obvious occasions when you’re likely to be credit checked. Here are some things that may impact you when you’re applying for a mortgage.

1.    Opening a current account

If you're tempted by switching bonus, hold back for the moment. Banks are aware you might need to use overdraft facilities or apply for other services they offer, so they check your credit report.

2.    Applying for new credit cards

As with new bank accounts, each new credit card application produces a credit check.

3.    Signing up to store cards

It’s a surprise to many that store cards are just branded credit cards that can only be used in one chain of shops. A check will go on your file when you apply. Be extra careful with some online retailers and catalogue sellers as you could easily be signing up for a credit account without realising.

4.    Applying for a personal loan

As you aren’t securing the money against something such as your house or another valuable possession, lenders will be checking to see how capable they think you are of repaying it.

5.    Switching to a new energy supplier

If you’ve fixed your tariff and it’s coming to an end, switching to a new supplier would mean a new credit check, so it’s best avoided near to a mortgage application.

Instead look at selecting a new fixed tariff with your existing company and check whether you can take it with you to your new property. 

6.    Starting a new mobile phone contract

Since many phone contracts include a handset and are for 18 or 24 months, you’re actually borrowing the money for the phone. This would probably have a very low impact on your application, but rather than upgrade when your contract comes to an end, you might be better off keeping the same phone and taking a rolling contract. Or even switching to pay-as-you-go until you’ve bought your home.

7.    Connecting to a new broadband and paid-for TV service

As with mobiles, most providers will credit check you. Once more, it’s probably best taking a rolling contract with your existing service and waiting until you are in your new home to get a new provider. Plus it means you won’t be tied into a new contract and have to pay any exit fees.

 

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  • Sophia / 3 May 2016

    Gone to take a new phone contract out but for some reason it's been declined, I've never been declined credit before and currently have a mortgage but in the next couple of couple days applying for a new mortgage will the phone declining affect new mortgage application?

  • kike / 4 February 2015

    There is no hard and fast rule to credit ratings, as there have been times I've been refused credit and been in a good place financially. Other times, I've been offered credit, when I haven't tried too hard. Once, I even applied for 5 different loans on the same day and got them all, which came as a complete surprise. I took the chance of a footprint being left on my credit report, because I was curious to find out if applying for too many loans at any one time would affect my getting credit/credit ratings. Although, thinking about it now, maybe clearing off some of my credit cards helped.

    I also blog and vlog on money matters regularly, check out my blog www.moneyideals.com/money-matters/

    All the best in improving your credit ratings 😄

  • Jason Burton / 4 February 2015

    Utter rubbish, mortgage lenders look and consider your affordability, if you're already paying a mobile phone contract and switching it to a new contract, your risk is exactly the same. I know because I've just done this, changed phone and a week later got a mortgage accepted.

  • Bryan Wells / 13 January 2015

    I didn't get a credit card from my own bank!

  • Johnny / 12 January 2015

    I was just about to get a new phone! I'll wait...