FIRST TIME BUYERS BREAKING LAW TO GET HIGHER CREDIT LIMIT

A THIRD of first-time buyers admit to breaking the law and lying about their income, when applying for a financial product, in order to get a higher credit limit.

However, lying on the application for a financial product, such as a store (credit) card or for a short-term loan, is illegal and could also lead to many Brits facing a large amount of debt they can’t afford to pay back.

David McGrail, Compliance Director at leading brokers First Mortgage who conducted the research, warns that this could jeopardise a chance of a mortgage.

“Most buy now pay later (BNPL) services, use credit checks and questions about your income to get an estimate of what they think you can afford, by putting false information in these questions, the applicant could end up with a much higher credit limit (the amount you can borrow / spend at one time), and doing this isn’t just a bad move financially as it is easier to fall into more bad debt, it is actually illegal and could ruin their chances of a mortgage.”

In the past year over half of first-time buyers have used a BNPL product such as Klarna, store cards and instalment plans. Using these sensibly and responsibly will not affect your credit score, borrowing too much can easily have a negative effect if you can’t make the repayments.

The research of 1,000 first time buyers found that 80% know that using BNPL products can negatively impact your credit score, especially if you fail to pay on time. However, a quarter said it wouldn’t make a difference to how much they use it.

Two thirds say that using a BNPL product would encourage them to make a larger purchase, with most popular purchases using these financial products include home furniture (44%), technology (40%) and clothes (27%).

A fifth of First-time buyers didn’t realise the impact a BNPL can have on their credit score, and in turn a mortgage application.

McGrail explains:

“It is important that people know the risks they face when using BNPL products, often failure to pay on time can lead to fees from the lender and can lead to a poor credit score. A good credit score is important when applying for a mortgage, if a lender sees you have frequently missed payments on things such as mobile phone contracts, credit card statements or even BNPL products it will affect their judgement on if you are someone who should be approved for a mortgage, especially the high loan to value products first-time buyers typically rely on.

The good news is there are five easy tips to ensure you keep your credit score at a good level.

1. Make sure you are registered on the electoral roll
2. Make any payments to BNPL services on time
3. Consider obtaining a credit card and repaying monthly. If you have no track record of repaying credit at all, this can lead to a low credit score.
4. Don’t use all of your credit limit at one time
5. Monitor your credit report, mistakes can happen which negatively impact your file. By monitoring, you can have these corrected prior to applying for a mortgage to ensure a smoother process.