Buying a house is a big dream and a large accomplishment for many people in the UK, but this dream will only come true if you are a responsible borrower or are related to the Queen!
This article will dive into the questions most potential lenders have.
We will provide you with everything you need to know when it comes to how to get a high credit score, whether there is a unique scoring system and why sometimes having bad credit does not have to mean the end of your home-owner dream.
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What is a credit score?
Basically, your credit score is a presentation of your financial reliability and how good you are at borrowing and paying back your loans.
If you pay off your loans regularly and on time, as well as use your credit card in a sensible manner, your credit score will improve. However, if you miss payments to your lenders or go over your credit card limit (once or several times), it will have adverse effects on your credit score.
It is important to note that each lender does interpret your credit history a little differently than the next. Therefore, there is no such thing as a “universal credit score”. Nonetheless, they use fairly similar criteria to assess whether or not your credit history is a good or a bad one.
Just know that while some might consider your credit history as strongly negative, other assessors might treat it less harshly, and the other way around, as well. Therefore, doing your research on your required credit score according to the assessors is important to be on top of your (financial) game.
What is the minimum credit score for a mortgage in the UK?
Unfortunately, there is no magic number that will make you automatically eligible for a mortgage. A minimum credit score is only part of a lengthy process of mortgage lenders assessing whether you are suitable to receive a mortgage or not.
As mentioned above, different agencies use different scoring systems. That is another reason why there is no set credit score number that will help you in knowing whether you can get a mortgage.
The three current credit reference agencies (CRAs), Equifax, Experian and TransUnion (previously Callcredit), use their individual scoring system:
- Experian’s scale runs from 0-999; if your credit score falls below 721, you have a low credit score.
- Equifax’s scale runs from 0-1,000; anything below 380 is a poor credit score.
- TransUnion scores on a scale from 0-710, as well as five ‘rating’ bands, and any score lower than 566 (or bottom of band 3) is considered to be a poor credit score.
However, the general rule of thumb is that the higher your credit score is, the higher the chances of you being able to secure a mortgage offer along with those attractive interest rates.
If you find yourself sitting below one of these credit reference agencies’ scoring system thresholds, then you should try and build your score before applying for any mortgage.
What is considered a good credit score in the UK?
As mentioned, each credit reference agency rates your credit score differently. Here’s a rough overview of what is considered a good and average credit score according to the three credit reference agencies in the UK:
- Equifax: 420 – 465
- Experian: 881 – 960
- TransUnion: 604 – 627
If you feel a little competitive and want to bump your credit score up into the category of excellence, here’s the rating for this according to the credit reference agencies in the UK:
- Equifax: 961 – 999
- Experian: 466 – 700
- TransUnion: 628 – 710
Should I check my credit score before applying for a mortgage?
It is always better to be in the know. Therefore, knowing your credit score will give you the advantage of knowing which credit reference agency is going to be rating you into which category and how they will rate your credit scores.
It will also make you able to make informed decisions on whether or not you need to boost your credit score for another couple of months before going to mortgage lenders. It will also inform you on whether there is something else you can do other than your credit rating, such as how much deposit you will need to pay.
If you are planning a private rental before getting a mortgage, you can still look into renting a house with bad credit.
Where can I check my credit score?
You can check your credit score online on websites which will give you information on your credit scores. Simply set up an online account and understand why you have been battling with a low credit score or simply track how your actions can get you to a great credit score.
Note that the credit reports from this website are also not definitive, and remember that there are different scoring systems from different credit agencies.
What credit reports do mortgage lenders use?
Mortgage lenders tend to use several different credit agencies for your credit report, as they want to have as much information as possible about you before they decide to offer you a mortgage. This is also referred to as a hard check.
During a hard check, they will investigate your credit history. Interestingly, this hard check will also appear on your credit history so that other mortgage lenders know that you have already been investigated before.
A hard check happens with every new application for a mortgage.
Note that your creditor will always have to ask for your permission to perform a hard search.
During a credit check, the agencies will also decide which category you will fall into, depending on your credit score. The categories are as follows:
- excellent credit score
- good credit score
- poor credit score
But, lenders will not take these categories as their deciding factor as part of their lending policy. Rather, they will look at other details in your credit history, for instance:
- Any credit issues in the past; for example, defaults, bankruptcy, CCJs, Debt Management Plans, Individual Voluntary Arrangements etc
- The total amount of credit you owe
- If you paid on time, in full or late and in instalments
- Whether you overpay
- If you make use of your overdraft and how often
Can you get a mortgage with a bad credit score?
Just because you have a low credit score does not mean that your chances of getting a mortgage are null and void.
You will definitely have fewer options and less flexibility than someone with a good credit score, but with a little bit of help from a mortgage broker or specialist mortgage broker, you will be able to figure out your options and find a deal that works for you.
A specialist mortgage broker will also be able to make your mortgage application look better and potentially save you from exorbitantly high-interest rates or a huge deposit.
If you have a low credit score, getting in touch with a specialist lender will enable you to receive a mortgage that is designed for your situation (i.e. a bad credit rating).
Do I have to pay a large deposit if I have a bad credit score?
If you have a low credit score, your mortgage lender might request that you pay a higher percentage of the property’s market value. There is, however, no way to say how high the deposit will be depending on how low your credit score is.
Many factors will influence the deposit, such as your age during your mortgage application; the property your would like to buy and several other factors.
As a rule of thumb, you can expect your mortgage lender to request that you pay a deposit of as high as 30% of the mortgage.
Thankfully, a lot of mortgage lenders understand that large deposits are not an option for a lot of people who are borrowing money already and therefore offer other ways and flexible terms for mortgage repayments.
Can you get a joint mortgage if one person has bad credit?
Yes, you can, and it might be a good way to increase your chances of getting a mortgage significantly. If you do not meet the minimum credit score needed, applying for a joint mortgage is advised.
Your partner’s credit report will be investigated, and their credit score will be added to your credit score so that you will meet the minimum credit score needed to continue with your mortgage application.
How do I improve my credit score?
While long-term credit use is probably the most effective means to ensure a good credit rating, there are other measures you can take.
There are various ways how you can improve your credit score, and one of them starts with working on your credit report.
Firstly, register on the electoral roll and get any errors that your credit report might show cleared up.
Secondly, don’t be afraid of your credit card. There is a misconception that by simply not using your credit card, your credit rating will go up and show mortgage lenders that you are good with money, but the opposite is true.
A mortgage lender needs to know whether you are a reliable borrower, and they will only be able to tell if your credit scores show that you have a good track record of repaying your credit.
Here are further ways how to improve your credit score and, thus, your credit rating:
- Pay off small amounts on your credit card regularly
- Prioritise paying off your debt
- Avoid withdrawing cash from a credit card
- Close inactive credit card accounts (although your score will likely dip as soon as you’ve closed your account as your overall utilisation drops)
- Don’t apply for any new credit accounts which result in a hard check
- Make sure you always have sufficient funds in your account to pay off any debit orders
- Get on the electoral roll
- Support your partner/ spouse to work on their credit score as well
Here are some more frequently asked questions on credit issues and how to overcome them in order to achieve a fair credit score.
If I have a low credit score, do I need a large income to get a mortgage?
Your income is one of the factors that will influence whether or not mortgage lenders will give you a loan. A good income will certainly up your ability to repay your mortgage and therefore increase your chances of getting a loan.
Mortgage lenders usually investigate the amount your earn against the money you spend, including bills, car insurance, debt repayments or any other expenses such as travelling and grocery bills.
If your income seems to cover your outgoings sufficiently, as well as potential mortgage repayments (including the associated costs), a mortgage lender might decide to approve you despite your bad credit score.
If you have a low income that will not suffice to cover the above, some lenders will refrain from providing you with a low, especially if you already have a bad credit score.
I’ve been declined because of a low credit score before; am I still eligible for a mortgage?
If you have been rated with poor credit by a credit reference agency in the past and have therefore been declined for a mortgage, this doesn’t automatically mean that you are now forever banned from applying for a mortgage ever again.
Speaking with a mortgage broker of your choice will offer you many ways to work on your credit report so that the major credit reference agencies will provide you with a good credit rating.
How can I correct my credit file?
If you feel that there has been an issue with your credit files, for instance, incorrect missed payments, make sure to contact the company that has filed the error.
While this may be frustrating and quite time-consuming, it is certainly worth the effort.
Making sure you have a clean credit file that portrays a good track record rather than outstanding debt or missed payments in the past should be absolutely paramount when looking to secure a mortgage for yourself.
Can I get a mortgage with a credit score of 600?
The main credit reference agencies mentioned in this article have their own scoring system; therefore, it depends on the reference agency what specific credit score you will need to have.
With a credit agency like Equifax or Experian credit score a score of 600 will classify as fair and will therefore mean you can get a mortgage.
Note that other factors, such as your income and debt ratio, also play a role in whether or not you will be eligible to get a mortgage.