Understanding CREDIT SCORES – A LANDLORDS GUIDE
Understanding credit scores and how they work is important for landlords when they are applying for credit themselves or when they are assessing tenant applications.
Understanding Landlords and Credit Scores – and How to Improve Yours
First, let’s look at landlords applying for credit for themselves and how they can make their credit score better.
First off, do not make too many formal applications for mortgages with different lenders and even mortgage comparison sites, (if they are running formal credit searches), as these will show up on your credit file, potentially worsening your credit rating. For these reasons, it may be best to approach a good mortgage broker who can assess which lenders are worth looking at (and which aren’t).
Get on the electoral roll. Never miss a payment on a utility bill, credit card or council tax bill or mortgage payment. Any CCJ will mean a straight rejection from most lenders. If your personal income is too low many lenders will be put off too.
Check your credit report regularly with one of the big credit reference agencies and have a “Notice of Correction” put on it if you see anything that is wrong.
Avoid being associated with multiple addresses at the same time.
Make sure that you follow up any bills due to you between tenancies, however small. We have heard of council tax enforcers not being aware of a landlords address for billing and then just sending the bill for payment to the tenant address. Unless the tenant forwards the post on to you, you will never know about a bill being sent to you, which can often lead to a county court judgement for a bill you did not even know existed.
Try to avoid maxing out to your credit limits and pay off credit cards in full each month whenever you can.
Cancel unused credit cards, overdraft facilities and close unused bank accounts. Have unconnected parties removed.
Bear in mind too, it is possible to look “too clean”. If you only have a basic bank account with no credit facility, don’t apply for a credit card and just use a Pay As You Go mobile, this will not establish a good credit record.
Even after you have done all the right things and have a good credit score, you may still get rejected because you do not fit a particular lender’s criteria. That’s just life.
Understanding Your Tenants Credit Score
Of course, the same rules which apply to you apply equally for your tenants.
We often find that a lot of the applicants we get – who are usually around 75% non-British citizens – have low credit scores. This is often because they have not been in the UK long, have moved around a bit, are not on the voters roll and because they tend to not like taking credit – few will have credit cards.
So they often find they get rejected by letting agents who generally use outsourced “Computer Says No” credit scoring systems.
However, because we ask to see tenants’ bank statements, we can scrutinise that and make a far more informed decision than can be done on just a bald credit score.
It is so easy to see from someone’s bank statements if they are in credit, have savings and are meeting their financial obligations each month. Also, it is easy to see if they have too many loan repayments going out and are overdrawn at the end of each month.
We often find we can choose between great non-British tenants who are regularly rejected by letting agents, which is one of the arguments in favour of doing the “Tenant Find” yourself, providing you know what you are doing. (If you don’t, please get at least one of our two books for landlords!)
On this topic of credit, we have also written at our other posts about so called “Mortgage Holidays” – in a word, DON’T GO THERE!
And, separately, we have written about “Guarantors”.
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We advise a range of organisations too to help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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