Credit scores and mortgages

Credit scores and mortgages

The good news is there is actually no minimum credit score requirement for you to buy a house. 

However, that’s not to say your credit score is not important.  It is. 

Your credit rating is an indication of how well you manage your finances, considering past borrowing, repayments, how much credit is used if any payments have been missed, etc. 

Ultimately your credit score is one of the main factors determining whether a lender will offer you the line of credit you need.  I.e., your credit score must be at a high enough level to satisfy lenders, that they’ll be in a position to offer you a mortgage. 

However, it’s important to note that lenders use a risk-based pricing model to determine mortgage loans and each lender’s approach to risk and lending varies.  This means that depending on the lender, the credit score required for getting a mortgage will also vary. 

(Read more about lenders’ views on risk here). 

Credit score for mortgages 

Experian, Equifax, and TransUnion are the three leading credit reference agencies in the UK, which can all provide you with your credit score and a full credit report. 

This score will vary for each agency; for example, Experian scores between 0 and 999, whereas Equifax scores between 0-700, and TransUnion is 0 to 710. 

This means that a good credit score will vary from agency to agency. Different lenders will use various credit reference agencies to gather their data, so it is always worth checking your score across all three.  

However, regardless of this information, overall, a good credit score will mean lenders will more likely consider you to be lower risk and improve your chances of getting a mortgage.  So, the higher the score, the better deal you may receive on your mortgage. 

It’s also worth noting that the smaller the mortgage deposit you put forward, the better your credit score will need to be. 

Of course, you can protect your credit score and even look at improving it by making small changes and adjustments.  Changes such as: 

  • Ensuring your bills are paid on time. 
  • Don’t apply for too much credit, all in short succession of the last application. 
  • You don’t default on payments. 
  • You stick to a clear budget. 
  • Your details are updated regularly, and 
  • If you feel yourself running into financial difficulties, you speak to the lenders to help put things in place. 

What is a good credit score? 

Depending on the home loan you’re applying for will depend on the credit score the lender will expect from you; again, this means the better your score, the more loan choice you will have. 

Looking across all three credit reference agencies: 

  • A good score with Experian is a score between 881 and 960.  An excellent score is 961 to 999. 
  • A good score with Equifax is between 420 and 465, and an excellent score is between 466 and 700.
  • A good score with TransUnion is between 604 and 627, with an excellent score between 628 and 710. 

Can you still get a mortgage with bad credit? 

Yes, in essence, you can still get a mortgage with a bad credit score, and specialist lenders will be able to help you with this.  Of course, the terms and the interest rate on your proposed mortgage may be less favourable than if you have a good credit score, but this situation doesn’t have to be a permanent one. 

Speaking with an independent mortgage advisor will help provide you with all the options available and ways to boost your credit rating going forward. 

In addition, other factors will also work in your favour.   Factors such as if you have a previous track record with the lender if you have a stable income, are you putting forward a large deposit (ideally this should be 10% of the property value), savings you may have, etc. 

For the latest information on home loans UK and leasehold reforms which will also affect getting a mortgage, make sure to read our next blog post

It is always advisable to seek expert advice from an independent mortgage advisor, who can help look at ways to boost your credit score effectively and efficiently. 

For further information and support on credit scores, home mortgages, and more, call a member of our friendly team today on 0330 229 1991

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