This is a much asked question.
But it is a common misconception that you must have a minimum credit score to be accepted for a mortgage. Those people that have a high credit score are more likely to be successful, but there are many different things that a lender checks and looks into.
Also, everyone has more than one credit score!
If you’re thinking of applying for a mortgage in the UK, you may be wondering what credit score you need in order to be approved for a loan. Your credit score is an important factor in determining whether you’ll be approved for a mortgage, and it can also affect the interest rate that you’ll be offered.
In this article, we’ll take a look at what credit score is needed for a mortgage in the UK, and we’ll offer some tips on how you can improve your credit score if it’s not quite where you want it to be. Whether you’re a first-time buyer or a seasoned homeowner, this information can help you make an informed decision about your mortgage application.
Here’s everything you need to know about your credit score and mortgages.
What is a credit score?
Your credit score is a number that represents your creditworthiness, out of a possible 999.
Each of us will have our own individual score. The score is influenced by your financial behaviour and borrowing over the past 6 years.
Your score will be improved when you handle your credit facilities properly, like regularly paying off loans on time or keeping within your agreed overdraft.
But it will be negatively affected by actions like making late payments, missing payments and borrowing frequently beyond your means.
There are three UK credit reference agencies that will collate and measure information regarding your financial behaviour and issue you with a credit score. Each has their own scoring system, meaning a person’s credit score will vary between the three agencies.
Find out your credit score
You can see what score you have been given by requesting this from the credit reference agencies.
They are:
- Equifax
- Experian
- TransUnion (previously Callcredit)
You have a legal right to access your credit report for free from any credit reference agency. These reports will provide a snapshot of your credit history but won’t include a credit score. For a monthly fee they will provide alerts and enhanced data.
Your Credit Report Explained
Your credit history is a continually updated summary of your credit based activities. It will include how much you have borrowed from each provider, along with any late payments or credit defaults.
This information is combined into a Credit Report. In our guide we run through what the report contains and how you can view the data to check that everything is accurate.
What is the minimum credit score needed to get a mortgage?
There’s no exact minimum score needed to successfully get a mortgage. This is because each lender operates their own scoring system, which will be influenced by the level of risk they are willing to take.
They will look at your past credit history, along with the information contained within an Agreement in Principle or application form.
Most agencies have five categories, or bands, for credit scores:
Excellent
Good
Fair
Poor
Very poor
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
What is considered a good credit score?
As they have their own rating systems, a good score will vary between them.
Here’s a general guide to what would be considered a good score:
Experian
881 to 960
Equifax
420 to 465
TransUnion
604 to 627
Ultimately, the best way to find out is to get your credit report from each agency and check if you’re in the higher bands. This will give you a good indication of what lenders may consider a good score.
It’s important to remember that lenders will consider this alongside other factors, like your income and disposable income. That’s why even if your credit score falls within the good category, it doesn’t guarantee a mortgage approval.
How many years of credit do I need to have a good score?
Your credit score is a reflection of your financial behaviour over the last 6 years, so it’s important to take this into consideration.
Remember also that your credit file is a history of your credit and borrowing transactions. If you’ve never applied for credit, or never been credit checked, then your score is likely to be very low as there is little information available to build up an accurate picture.
Having no credit history makes it more difficult for lenders to assess you.
If you have had any previous defaults or CCJs in this period, then this could affect the score negatively. But if you’ve been able to demonstrate good money management and payment history, then your score could be higher.
What is a bad credit score and how will it affect me?
A poor, or very poor, credit score means that your mortgage application is more likely to be refused. However, this is just one part of how lenders assess a mortgage application.
Your credit score will give lenders an indication as to how you have managed your finances and how likely it is that you will be able to meet the repayments. The size of your mortgage deposit will work in your favour, as will not stretching your mortgage borrowing to the absolute limit.
When someone has a poor credit score, they are less likely to be approved for a mortgage. This could also mean the mortgage is more expensive or the loan amount is lower than you would like.
Bad credit mortgage lenders will also charge higher interest rates or require larger deposits from people with bad credit scores. And they might not be able to offer the full range of mortgage products.
Ultimately, it’s important to make sure that you keep up with payments on existing credit agreements and try to improve your record over time. This will help you get a better credit score, which in turn may help you secure a more favourable mortgage deal in the future.
How do lenders make their decisions?
Lenders may use just one or all of the credit reference agencies to help with their assessments. For this reason it is generally a good idea to check what your score is from all three.
They will look at your credit report which will show:
- If you are registered to vote
- Any financial accounts you have open
- Any late payments on those accounts
- CCJs, IVAs etc
- Whether or not you are linked to anyone else financially (e.g. joint account)
They will take the information from your application form, and any data they may already hold about you. All of this is combined together, giving you their own unique score.
What information do credit reference agencies have?
Credit reference agencies make use of a variety of sources to collate information about your financial behaviour.
These include:
- Information on electoral roll entries
- Your credit accounts, such as loans, mortgages and store cards
- Public records, such as bankruptcy or court judgements
- The number of times you have applied for credit in recent months
- Associated financial partners
The credit reference agencies use all this information to suggest a rating that shows how you have behaved financially in the past.
How can you boost your credit score?
Improving your credit score is not an overnight job, but there are small steps you can take to improve it.
Register to vote – being on the electoral role is a sign of stability and helps companies confirm who you are and where you live.
Make sure that you stay on top of your payments; this includes any existing loans, bills or other debts and always stay within your agreed limits. Pay on time and if possible set up direct debits so that the payments are made without fail each month.
Try to reduce any existing debts as much as possible, or look into setting up a debt consolidation plan if it will help you manage your outgoings better.
Check your credit report regularly. This will give you the chance to identify any errors and contact the credit reference agencies to have them corrected. It is also important to ensure that your personal information is up to date and correct.
Hard credit checks show up on your file but a soft credit search will not be visible to other lenders.
Finally, avoid applying for too much credit in a short space of time as this can have a negative impact on your score, as will over stretching yourself financially, or maxing out your cards.
If you have a very low score, or even no score at all, there are things you can do. If you have never applied for credit or rented a property then you could have a thin credit file. Basically it’s empty!
By using a credit building credit card you borrow small amounts, which are then paid off in full each month. By doing this, you create a positive track record of responsible borrowing and payment.
And don’t use payday loans.
Why should I check my credit score before applying for a mortgage?
Checking your credit report and your credit score doesn’t take much time, and need not cost any money.
It is the only part of your own financial status that you cannot readily ‘see’ and have direct control over. Conversely to prove your income you can show payslips and to prove your mortgage deposit you can show savings account statements.
If you don’t ascertain what your credit position is then you are flying blind, and this is particularly relevant for first time buyers.
Also, credit reference agencies can make mistakes, and credit fraud can happen to anyone. The only way any errors can be picked up or fraudulent entries corrected is by checking over your report.
Once any errors have been fixed, and you know what your score range is, then it’s time to speak with your mortgage broker.
It’s not all about a great credit score
The data held within your credit file is vitally important to lenders, it paints a picture of how you deal with money and debt. But even if your credit score is excellent, a lender could still refuse your mortgage application for other reasons.
It’s important to remember that lenders look at the whole picture when evaluating your application and whether you are able to repay the loan. This includes factors such as: job security, salary, income sources, other debt commitments, expenses and financial history. They will look at your bank statements to see how and where you spend your money.
If you spend some time getting organised and being mortgage ready then this will improve your chances.
Bottom line is that its always beneficial to check your credit report and know what your score is before applying for a mortgage – so at least you are aware of what lenders are seeing when making their decision.
FREQUENTLY ASKED QUESTIONS
How far back do lenders look?
Your credit score is influenced by your credit activities over the previous six years.
How do I correct an error on my report?
Depending on what the error is, you would either first approach the organisation who would have supplied the information, or the specific credit agency showing the error.
How do lenders make their decisions?
Lenders look at your credit score, your credit history and the information provided on the application form. Affordability plays a big part and many lenders use a mortgage stress test and a debt to income ratio test.
My partner has bad credit, will this affect me?
This won’t affect your personal credit score but if you are financially linked then their bad credit status could influence the outcome whenever you try applying for credit.
Does gambling affect your credit score?
No, gambling will not directly affect your credit score. However, where your gambling transactions are funded from a credit card or debit card then the lender will be able to see this and then take their own view.
Is it bad to have no credit score?
Not having a credit score isn’t necessarily bad, but it can prevent you from qualifying for loans and credit cards etc. This would be referred to as having a ‘thin credit file‘
