How could making mortgage overpayments affect your credit rating?
For many with mortgages, interest rates remaining static lately has been rather helpful. Low interest rates have meant that the mortgage market has been very competitive, and for many on a long-term low tracker rate itís been quite beneficial.
Some say that at a time when many standard savings accounts are earning relatively poor returns, making overpayments on your mortgage could end up saving you interest over a long period of time, and provide a potential buffer against the eventual interest rate rise whenever it should happen.
So how could making mortgage overpayments affect your credit rating, assuming that they are allowed as part of your deal? Reducing your outstanding debts more quickly is only likely to have a positive effect on both creditworthiness and affordability calculations. Having very high levels of outstanding debt could deter potential lenders, as once youíve decided to make a credit application, lenders want to make sure you're able to pay it back before they agree to give you credit.
It is however important to remember that if you have previously made overpayments, it is highly unlikely to absolve you from being able to miss contractual repayments. Many credit agreements, such as credit cards, loans and mortgages, come with an obligation to make a minimum contractual payment before a certain date every month. Completely missing a payment one month is likely to result in a late payment being registered on your credit report ñ even if you paid more than you needed to the month before.
Itís best to always make your repayments on time, ideally paying more than the minimum off your credit cards each month if you can. This is because missed or late payments stay on your credit report for at least six years, and it can have a big impact on whether lenders will accept you or not. If you canít make the minimum payment, speak to your lender as soon as possible, but donít bury your head in the sand. You can see your Experian credit report with a 30-day trial of CreditExpert.
Also, check your credit rating before you apply for new credit, as this will give you the best chance of knowing if you will be accepted or not. Get into the habit of reviewing your Experian credit report on a regular basis - make sure everything is accurate and up to date and query anything that isn't. Even small details like the way your name and address is recorded could have a significant impact.