What Credit Score Do You Need For A Mortgage?

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One of the first things lenders look at for mortgage proposals is your credit score. The number can reveal a lot about your financial situation and spending practices. A high score usually puts a lender’s mind at ease. Meanwhile, lower scores and a poor credit report typically end up with higher interest rates and larger down payments. That said, a good to excellent credit score can provide you with an ideal mortgage deal complete with low interest.

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There is no minimum credit score needed for a mortgage application, but a poor credit score will mean higher interest rates, and increase the likelihood of you needing a specialist mortgage broker, like When The Bank Says No, in order to secure a mortgage to begin with.

Nevertheless, lenders don’t only observe your credit score when evaluating your application. Other factors like income and age also affect their decision. Stick around to learn more about your credit score and how much you’ll need to get a mortgage deal.

Defining Credit Score

Credit scores highlight your financial responsibility and how well your repayment system works. It also counts your credit card usage. Major credit reference agencies submit your credit score and calculate it for you, but knowing your score and understanding the scoring system is the key to improving your credit.

That said, credit scores vary across each agency – but they all work similarly in determining your likelihood of securing a loan. 

Why Is Your Credit Score Important When Applying For A Mortgage Loan?

Your credit score is critical when applying for a mortgage and most other types of loans. Lenders can better understand your financial practice and responsibility by looking at your credit rating.

Mortgage lenders are analysing the risk of lending to you. The lower your score, the more likely they consider that you’ll default on the loan and vice versa. The higher score emphasises your better financial management and ability to pay your loans on time.

Besides that, lenders don’t only observe your credit score when deciding to give you a loan. Your age and salary can also play a contributing factor. Another crucial aspect that can impact your chances of getting the mortgage is your application submission and how well-presented it is. 

How Is Your Credit Score Measured?

Credit scores are measured based on your repayment practices. If you have missed payments or payments are late and you exceed your credit limit, your credit score lowers. The earlier you pay, the more likely your score will increase. The main credit reference agencies use the following descriptors to explain your credit score at a glance:

  • Excellent: You’re more likely to get the best mortgage offers with the lowest interest rates.
  • Good: You can secure the majority of the best mortgage deals.
  • Fair: A fair credit score means you’ll get reasonable mortgage offers with sensible interest rates.
  • Poor: You can get a mortgage deal but with high-interest rates. Requiring a specialist mortgage broker is likely here.
  • Very Poor: You’ll likely get rejected for a mortgage offer unless they have high-interest rates. Specialist mortgage brokers will more than likely need to be used when looking for a mortgage with a very poor credit score.

Every agency has different ranges for each benchmark category, as displayed in the table below. These are the most widely used credit agencies in the market.

 

Experian Equifax TransUnion
Excellent 961-999 811-1000 628-710
Good 881-960 671-810 604-627
Fair 721-880 531-670 566-603
Poor 561-720 439-530 561-565
Very Poor 0-560 0-438 0-550

 

Whether it’s an Equifax, TransUnion or Experian credit report, if your score is below good, mortgage lenders may view you as having adverse credit and you’ll have a more challenging time securing the mortgage. In this case, you can implement methods to improve your score.

What Credit Score Do You Need For A Mortgage?

You’ll want to maintain an excellent or good credit score to find an exceptional mortgage with lower interest.

Otherwise, if your score is fair or below, you’ll likely get a high-interest mortgage that’ll be more difficult to pay off.  

There is no minimum credit score needed, but if you have missed credit payments in the past that have contributed to a poor or very poor credit score, you’ll almost certainly need the support of a specialist mortgage broker like us, who can help frame your credit issues in a more positive light, and who work with lenders willing to consider applications from individuals with less than ideal credit scores. We can also offer advice on how to get a higher credit score, as the higher your score, the more we can help.

What Information Do Credit Agencies Gather?

Besides your repayment habits, credit agencies gather other information to gauge your score. Some data includes:

  • Duration of your stay: This shows how long you’ve stayed at your current address. It reassures a lender of your stability.
  • Credit agreements: Your borrowings are shown here. It displays who you’re borrowing from and whether you’ve paid them back on time.
  • Electoral roll presence: This identification authenticates your address and name to lenders. They’ll also know the duration you’ve been registered to vote at your current address.
  • The number of credit applications: The information details the number of applications you’ve submitted for a loan. The more frequently you apply in a shorter time, the lower your chances of getting a mortgage. It’ll show that you’re unable to handle your finances well enough.
  • Credit utilisation: This shows how much you spend on your credit card. For example, if you have £20,000 and spend £10,000, your credit utilisation is 50%.
  • Public records: Your records can reveal Administrative Orders, Debt Relief Orders, bankruptcies, and county court judgments.
  • Financial partners: This will identify any person you’re connected with financially, such as a spouse with a joint account.

If You Have A Good Credit Score, Does That Guarantee You A Mortgage Offer?

In some cases, a good credit score doesn’t guarantee a mortgage offer. Lenders often consider other factors, such as your affordability and income.

Your organisation can also be a determinant. Ensure you have all the necessary documents, such as pay slips, self-assessment tax account information, proof of deposit, address, and other personal information.

You might also want to give a gift letter if someone contributed to the deposit payment. The document will stipulate that the gifter has no equity over the property and won’t receive their funds back.

What To Do If You Have A Low Credit Score And Poor Credit History

If you have a low credit score and need a mortgage, you’ll likely get one with high interest. Plus, you’ll need to deposit at least 15% of the home’s value to secure it.

Aside from that, some lenders accept low credit scores. Some people may not use credit altogether, but that shows they haven’t taken out many loans. This will support their chances of getting a mortgage loan.

In other cases, situations may vary where the individual hasn’t stayed in the UK for a long time or just started their credit history.

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How To Improve Your Credit Score

Your credit score might not grant you a mortgage rate with fewer interest charges. Fortunately, you can boost your score and aim for better rates using several methods.

Repay On Time

Paying your loans on time can increase your credit score. Avoiding late payments will save you from the extra fees.

Be Mindful Of Your Credit Applications

Avoid applying for credit six months before requesting your mortgage. Registering for credit allows lenders to conduct a “hard search” on your credit history.

Too many “hard searches” will make it seem like you’re getting too much credit in a short span. In turn, lenders will assume you’re not managing your finances well. For this reason, be mindful of the frequency of your credit applications.

Check Your Credit Utilisation Ratio

During your mortgage application, keep your credit utilisation below 25%. It’ll show lenders that you’re capable of responsibly overseeing your spending.

That said, if you have an extra credit account that you’re not using, don’t rush to close it. Keep it open to lower your credit utilisation ratio since it counts towards your credit limit.

Register For The Electoral Roll

Your electoral roll registry allows lenders to track your address and name. The added confirmation heightens your chances of getting a better credit score and landing a mortgage.

Confirm Your Personal Information

Go over your personal information in your credit report. Any inaccuracies, such as occupancy, age, name, and address, can hurt your score.

Even spelling mistakes can make a difference, so proofread and report errors to your credit reference agency.

Monitor Fraudulent Activity

Some people can open accounts or take out loans in your name. Consequently, it can impact your credit score. To prevent this, keep yourself up to date on your credit score and history.

Ensure Your Name Is On Bills

When paying household bills, make sure it’s in your name. Otherwise, it won’t count toward your credit score.

Assess Your Financial Links

Your financial partner’s score may negatively affect your score, whether you’re sharing an account or credit card. Subsequently, you’ll want to consider removing yourself from the link to boost your credit score.

Keep An Eye On Your Score

Tracking your score will keep you one step ahead of any potential errors. Plus, you’ll be seeing what your lender is seeing and be able to assess your chances of getting the mortgage. You’ll also know when to apply to avoid rejections which will only decrease your score.

Controlling your debt level can increase your likelihood of an accepted mortgage. Additionally, try to keep your mortgage applications to a minimum.

How Long Does It Take to Improve Your Credit Score?

Improvements in your credit score can take weeks to reflect, whether you’ve registered for the electoral roll or decreased your credit utilisation percentage.

Additionally, negative marks are often more pronounced. For instance, if you miss a payment deadline or exceed your credit limit, it can stay on your credit history for up to six years.

Other factors can affect your credit score changes, like lender’s activity. You’ll likely notice late changes if they’re not promptly reporting on your account history.

How To Avoid Getting Rejected For A Mortgage

Before applying for a mortgage, consider the risk factors of getting rejected. It could significantly hurt your chances of getting other offers and decrease your credit score. For this reason, you’ll want to follow a few tips to avoid getting a rejection notice.

  • You can create a credit account and diligently follow up on its repayments without exceeding the spending limit.
  • Go over your credit history. Pick out any inconsistencies and report them. You’ll have to create a dispute with your credit agency. Despite the lengthy process, it’ll clear the inaccuracy and increase your score.
  • Include all your income sources in the application, such as your income, bonuses, overtime, and benefits.

If you are applying for a mortgage with bad credit, then you may need to find a specialist mortgage lender that can help those with a poor credit rating get a mortgage with adverse credit mortgages. 

Mortgage With Low Credit Score FAQs

Are credit scoring systems the same across all credit agencies?

Although all credit agencies use similar benchmarks, ranging from excellent to very poor, they don’t have the same scoring numbers. For instance, a 700 credit score may be poor for Experian but relatively good and excellent with Equifax and TransUnion.

Can I boost my credit score by 100 points?

You can increase your credit score by implementing several changes to how you manage your credit. Firstly, you’ll want to get rid of any outstanding debt you owe. Then, ask a close relative or friend with a high credit score to add you to their account. Clear your credit balance every month. You can also pay for your car insurance monthly rather than annually.

Do I need a substantial income to get a mortgage if I have a low credit score?

A high income can highlight your financial stability to your lender. It needs to match up to your outgoing spending, debt, and insurance. If it covers all of the above and the mortgage repayments, bad credit mortgage lenders will likely still consider you for a mortgage deal despite a previously poor credit history thanks to specialised bad credit mortgages for those with a bad credit rating. 

What is the average credit score?

The average UK credit score, according to Experian, is 797 (fair). The score varies across different regions. In London, the highest average score is 893 (good). Meanwhile, the lowest average scores can be found in Blackpool with numbers going down to 713 (poor).

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What Credit Score Do You Need For A Mortgage Takeaways

What credit score do you need for a mortgage? Staying between the good and excellent benchmarks will ensure exceptional mortgage deals. Nonetheless, your mortgage offer also rests on other criteria outside of a poor credit rating, such as your salary and age.

That being said, if your credit score is on the low end, you can boost it through multiple methods. Some of these include registering for the electoral roll and confirming your personal information.

Your credit score won’t witness a significant increase until a few weeks or more. It depends on the lender’s activity and reporting frequency. Overall, monitoring your score regularly will help you track any issues in advance and avoid problems with your credit file that will negatively impact on how you are viewed by specialist lenders.

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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.

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