Financial expert explains one thing that could affect your mortgage approval

Navigating the mortgage approval process can feel overwhelming, with many hurdles to overcome before securing your dream home. 

Properties are often listed at one price and sell for €50,000 to €100,000 above asking due to high demand for family homes. 

Despite these challenges, several government schemes are available to help first-time buyers get on the property ladder - once you secure that all-important mortgage approval.

We spoke with AskPaul, one of Ireland’s leading financial advisory services, to understand what might stand in your way during this journey. 

One of the most common reasons for mortgage rejection is related to your credit history.

But what exactly does that entail?

When you apply for a mortgage, your chosen lender will scrutinise your credit history to assess your ability to make repayments. 

According to the CCPC, “every month, the Central Credit Register collects and stores personal and credit information from lenders, including licensed moneylenders and local authorities, about existing loans or new loans they give to consumers.

“Lenders who issue loans of €500 or more must inform the Central Credit Register of these loans. Information on smaller loans under €500 is not collected.”

This means that if you have outstanding loans or missed payments, they will likely negatively affect your mortgage application.

How important is having a good credit history?

Speaking to Her.ie, Paul Merriman, CEO of AskPaul, emphasised: “Having a good credit rating is crucial as it greatly influences your ability to secure a lease or mortgage on favourable terms. 

“Paying all bills on time, maintaining low credit card balances, and avoiding unnecessary new credit accounts are key practices to improve your score. Regularly check your report for errors and contest any inaccuracies. 

“Cultivating these habits now will put you in a strong position when you apply for a mortgage.”

It's also essential to understand that if you have missed payments, failed to clear a loan or credit card, or settled a loan for less than what you owed, this will remain on your credit history for five years after the loan is closed.

Improving your credit score before applying for a mortgage

According to Smart Mortgages, here are some tips to enhance your credit history:

1. Pay your bills on time: Your payment history is vital. Late payments can significantly impact your score. Set up direct debits or reminders to ensure timely payments of all bills, including utilities, loans, and credit cards.
2. Avoid opening new credit accounts: Each new credit application results in an inquiry on your credit report, which can temporarily lower your score. Avoid opening new accounts before applying for a mortgage to keep your credit profile stable.
3. Consider paying off your car loan: Lenders want to see if you can afford a mortgage, which isn’t based solely on your income. They’ll also consider your financial commitments, outstanding loans, and proposed mortgage repayments. These factors combined give lenders a complete picture of your borrowing capacity.

Improving or maintaining a strong credit rating is essential when preparing for a mortgage application in Ireland. 

By understanding your credit report, paying bills on time, reducing debt, and making informed financial decisions, you can boost your credit history. 

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