Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at [email protected].
Question: Earlier in my twenties whilst at university, I had my mobile phone bill direct debit set up to the wrong bank account. I missed three months worth of bills as a result and my credit score went down. I am now worried that six years later, it is going to impact my chances of getting a mortgage for me and my boyfriend. How serious is this? Should I be worried?
Answer: Missing a few bills, especially early in your financial life, doesn’t necessarily mean you’re out of the running for a mortgage. While it may have impacted your credit score at the time, lenders take a range of factors into consideration when assessing a mortgage application.
A credit score is essentially a numerical representation of your financial reliability. It is calculated based on various factors, including your payment history, the amount of debt you carry, how much of your available credit you’re using, and the length of your credit history. This score gives lenders an idea of how likely you are to repay any money they lend to you. In the UK, credit scores typically range from 0 to around 999, depending on the credit reporting agency.
Each credit reference agency uses its own scoring system. For instance, Experian scores range from 0 to 999, Equifax from 0 to over 700, and TransUnion (formerly Callcredit) from 0 to 710. The higher your score, the more positively lenders will view you.
However, having a lower score doesn’t mean you won’t be able to get a mortgage. It simply means you may face stricter terms, such as higher interest rates or the requirement for a larger deposit.
When you apply for a mortgage, lenders use your credit score to assess risk, determining how reliable you’re likely to be when it comes to repaying your mortgage. However, they don’t just focus on the score alone -they’ll also review your credit report in detail, looking at any missed payments, defaults, or outstanding debt.
Since your missed phone bills occurred some time ago, they might not have as much of an impact now, especially if you’ve managed your credit well since. Lenders often give more weight to recent financial behaviour, so if you’ve maintained a positive track record over the past few years, this could work in your favour.
It’s important to understand the difference between a credit report and a credit score. While the two are related, they’re not the same thing. A credit report is a detailed record of your financial history, containing information about your open accounts, balances, any missed payments, defaults, and public records such as bankruptcies or County Court Judgments (CCJs).
Lenders use this report to get a full picture of your financial habits. A credit score, on the other hand, is a simplified, numerical summary of this report. It provides lenders with a quick overview of your creditworthiness but doesn’t offer the full context, which is why lenders often review both when making a decision.
If missing a few bills has affected your credit score, don’t panic – it is possible to improve it. Start by checking your credit report for any errors. You can request a copy of your credit report from all three major credit agencies and review it carefully. If you notice any inaccuracies, such as incorrect payment history or accounts that don’t belong to you, you can dispute them with the relevant credit agency.
Also, many lenders will overlook missed or late payments when it comes to telecommunications or utilities bill typically up to £250.
Going forward, make sure to pay all your bills on time. Your payment history is one of the most significant factors in determining your credit score, so setting up direct debits to ensure you never miss a payment is a good idea. Reducing your debt can also help, especially on revolving credit like credit cards. Aim to pay down as much of your outstanding balances as possible.
Missed payments can affect your credit score, especially early on, but they don’t have to prevent you from getting a mortgage. Focus on building good financial habits, reducing your debt, and staying on top of your bills. Over time, your credit score will improve, increasing your chances of mortgage approval with more favourable terms. If you’re unsure or need help understanding your credit report, a mortgage broker can assist and discuss the options available to you.
