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Does A Declined Mortgage Impact Your Credit Rating?

Does a declined mortgage impact your credit rating?

Does A Declined Mortgage Impact Your Credit Rating?

Applying for a mortgage is no fun – there are numerous forms to fill out supporting documents to submit, and there’s always the added worry of an application affecting your credit score. This becomes even more stressful when you find out that your mortgage has been declined. 

Reasons why your mortgage may have been declined

Each lender has its own set of criteria, which they use to determine whether they will offer you a mortgage or not. Due to these criteria, there are several reasons why your mortgage application may be declined. 

  • You have a poor credit history.  
  • You aren’t registered to vote on the electoral roll (you have to be registered at your current address as lenders use this to confirm your identity).  
  • You’ve applied for credit too many times (this results in numerous credit searches, which will be recorded on your credit report).
  • The lender has determined that you have too much debt.  
  • You aren’t earning enough or, based on the lender’s calculations, you won’t be able to afford the mortgage repayments. 
  • There are administration errors on your application (for example, an incorrect address). 
  • You have missed a debt repayment recently.  
  • Your earnings fluctuate since you are self-employed or are a contract worker. 

Does a declined mortgage impact your credit rating? 

When a mortgage loan is declined, the only thing that will show up on our credit report is the application. Thus, a declined mortgage won’t lower your credit score in itself. However, a declined mortgage will likely lead you to apply again. It is these applications that will negatively impact your credit rating. 

While your credit score may drop after a mortgage application, there’s no need to worry as this is usually only a short term effect. Your credit score will usually return to normal or even improve in the months following your credit application. Just be sure to stay up-to-date with any other debt repayments you may have. 

What should you do if your mortgage application is declined?

While a declined application may leave you frustrated and a little stressed, it doesn’t mean that you cannot get a mortgage. However, before going ahead and submitting a new mortgage application, there are some things you should do first. 

Firstly, you’ll want to ask the lender why your mortgage application was declined. If the lender doesn’t disclose the reason, you’ll have to look at your own credit report and see if there is anything there that may have negatively impacted your application. 

If you can’t spot anything on your credit report, you should try to increase your current credit score. There are several easy ways to do this, such as paying off your existing debt, using less credit than what you have available or ensuring your regular payments are settled timeously and in full. By increasing your credit score, you will demonstrate that you are a responsible borrower. 

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