Struggling to get a mortgage approved?
You may have heard that a credit supplement could improve your chances of being accepted by a lender.
But what is a credit supplement and how do you get one?
Read our complete guide on how you could get on the property ladder with a credit supplement.
What is credit supplementation?
Put simply, a credit supplement is a tool that helps lenders evaluate credit when you apply for a loan such as a mortgage. It’s a type of report that is issued by a credit agency to verify information on your file or if your credit file doesn’t contain enough information for your mortgage application to be approved.
When is a credit supplement for mortgage required?
Your lender will typically ask for a credit supplement if an item on your credit reports needs to be revised. Here are a few examples.
● One of your accounts has been inactive for a long time and your new credit report doesn’t contain the most recent information.
● One of your current accounts hasn’t been updated in a long time.
● Inaccurate balance information.
● The status of your account has not been correctly reported.
● If you haven’t removed an authorized user from your account, even after you have been removed from the account.
Why is a credit supplement important?
To demonstrate the importance of a credit supplement, let’s look at a specific example.
Let’s say your credit report flags that your student loan payments are higher than they should be. This will affect your debt-to-income ratio and could ruin your chances of applying for the loan. A credit supplement can help by providing accurate student loan payments and your debt-to-income ratio can then be calculated correctly.
You may also be asked to provide a letter that confirms that you haven’t opened any new accounts, or explain why an account was opened, since your last credit report.
Basically, a credit supplement could be the difference between the mortgage process being denied or approved.
How do you get a credit supplement?
The important thing to note here is that your mortgage lender or broker will start the credit supplement process, it’s not something that you have to do yourself. Your lender will follow these seven stages to process your credit supplement.
1. Lender orders credit report.
2. Lender reviews credit report.
3. If the report needs updating, a credit supplement is requested.
4. The information is gathered via either a conference call, borrower documentation or audio phone call with the creditor.
5. The supplement is updated with the verified information.
6. An email is sent to the lender confirming that the credit supplement was completed.
7. The lender can now proceed with the loan or mortgage application.
What is the difference between a credit supplement and a credit report?
A credit supplement and a credit report are two different things.
A credit report is a summary of how you have handled your credit accounts. It is used by potential lenders to decide whether to offer you credit and on what terms. Your credit report typically holds the following information:
· Bank account provider.
· Name and date of birth.
· Previous and current address.
· Fraudulent activity or cases of stolen identity.
· Any credit, bank or credit accounts in your name.
· Current loan agreements.
· Bill payment history for the last six years to show if you’ve missed any payments or made late payments.
· Joint loan agreements such as a mortgage to show anyone that is financially linked to you.
· County Court Judgements
· Home repossessions
· Debt Relief Orders
· Voluntary agreements
A credit supplement is a process that allows a third-party to revise any item on a credit report.
Does a credit supplement affect your credit score?
Credit supplements should not be viewed as a negative thing and applying for one won’t affect your credit score.
So, are there any downsides of a credit supplement that you need to consider? It can increase the time it takes for your loan to be approved, however sometimes it’s the only way that your mortgage application will go through.
There can be a cost to a credit supplement, typically between $10 and $20 for each credit supplement inquiry. It’s a good idea to review your credit report before applying for any loan, so you can be prepared to answer any discrepancies or questions beforehand.
What is a credit rescore?
A rapid rescore is a method that is used to raise your credit score through proof of positive account changes to the three main credit bureaus, Experian, Equifax and TransUnion. A credit bureau will report the non-traditional payment history to the three major credit reporting agencies. It has been known that this process can lift your initial credit report and score by 100 points within a matter of days.
How long does a credit supplement take?
Credit supplements are a quick process that can be completed in a matter of days depending on the method used. For example, an online or telephone credit supplement can be completed in less than a day. Requests in writing can take up to five days.
To put this into perspective, waiting for the credit bureaus to update your credit report could take up to 45 days.
What is Credit Plus and why do they call you?
When applying for a mortgage or car finance, you may find that Credit Plus is listed as a hard inquiry on your credit report. This is because Credit Plus provides credit checks on behalf of mortgage lenders. A hard inquiry could stay on your credit report for up to two years but will normally only affect your score for one year. If you believe your report contains incorrect information, you can dispute it by contacting Credit Plus directly.
Actions that could damage your mortgage application
Getting a mortgage these days can be tricky, but there are things you can do, and not do, to improve your chances of getting approved.
1. Having large amounts of debt
It is possible to get a mortgage with credit card debt, but it makes it much harder and will affect how much you can borrow. Before applying for a loan for a house you should try to eliminate as much debt as possible. Start is by making a list of all your debts, in order of the highest interest. Next, look at your budget and add in your debt repayments based on how much you can afford to pay off each month. Research balance transfers to help reduce the cost of borrowing. The money you save on interest can be used the pay off the balance, rather than just the fees.
2. Bad credit scores
If you’ve missed or made late payments on any existing loans or even mobile phone bills, you could ruin your chances of getting approved for a mortgage. Don’t lose hope if this has happened to you. Focus on trying to improve your credit score using the tips below before applying for a loan.
· Pay credit card company balances strategically – keeping your balance less than 30% of your limit will prove to lenders that you’re managing your finances well.
· Pay your bills on time – late payments can stay on your credit report for up to seven years.
· Dispute errors on your report – if you notice something odd on your report, dispute it immediately to prevent it from pulling down your score.
Using a combination of these methods could improve your credit score in as little as 30 days.
3. Not having a credit history
No credit history is almost as bad as having a poor credit history. Lenders need proof that you can make repayments before lending you significant amounts of money. Applying for secure credit and store cards can help you build a credit history, providing you make the repayments in full and on time.
4. Borrowing too much money
Lenders will typically only lend a maximum amount of four times the combined salaries of the applicants. Asking for way more than this will probably result in your application being rejected and affecting your credit score.
5. Errors on your application
It’s really important that all the information that you provide is accurate and up to date. Not only will any inaccuracies cause delays in the process, but it could also end in the mortgage loan process being declined.
Credit supplements for mortgages
In summary, a credit supplement can be used to get your mortgage application approved if there are any discrepancies on your credit report. Keep in mind that it won’t 100% guarantee that you’ll be accepted for a mortgage and you should always try to improve your credit score before applying for a loan from a lender.
Want to know more about homeownership? Check out the home section of our personal finance blog for the latest advice and tips on managing your money.