When you’re dreaming of buying your first home or upgrading to a bigger one, the prospect of getting a mortgage can feel daunting. You might be asking yourself: “Will my credit score be good enough? What can I do to improve my chances?” These are valid concerns, especially since your credit history plays a crucial role in determining your mortgage eligibility.
Mortgage lenders now rely heavily on your credit rating as it’s an easy and fast way of assessing how well you manage your debts. It helps them to make speedier and more reliable decisions.
To build up credit for a mortgage, check your credit report, pay bills on time, reduce credit card balances, limit new applications, get on the electoral register, and clear any adverse credit. Review your credit file regularly and maintain long-standing accounts to boost your credit score over time.
This guide will elaborate on this advice so that you can approach the mortgage application process with confidence.
For personalised mortgage advice, contact Goldmanread. We have been helping home buyers in Essex and beyond since 2009 to secure a mortgage.
We can provide valuable advice on how your credit rating affects your mortgage chances and advise which lenders are a good fit for your circumstances.
How does your credit rating affect your mortgage application?
Mortgage lenders assess your credit rating to predict how well you’ll manage your mortgage repayments. It’s a quick way for them to evaluate your financial reliability.
A good credit score can lead to better interest rates, lower fees, and a smoother application process.
On the other hand, a bad credit score can make it more difficult to get a mortgage, but it doesn’t necessarily mean you’ll be declined. However, it often results in higher costs or stricter terms.
Read more about bad credit mortgages here.
What is the minimum credit score needed for a mortgage?
There is no simple answer to this, as it depends on what credit reference agency the lender uses.
The 3 biggest agencies are:
- Experian
- Equifax
- Transunion
Each agency has its own scoring system, and the lender will have a cut-off threshold at which they will decline an application. Generally, the threshold for a mortgage will be higher than that for other forms of debt, such as a conventional loan.
However, this threshold depends not just on your score but also on a number of other factors, such as your deposit, income multiple, and length of time on the electoral roll. The credit score threshold will be set at a level that reflects the risk profile the lender is willing to accept.
For instance, if you’re applying for a 95% loan-to-value (LTV) mortgage, where your deposit is just 5%, a higher credit score will typically be required compared to a 75% LTV loan.
How long should I work on improving my credit before applying for a mortgage?
The first thing to do is check your current credit score. Improving your credit score may take anything between a few months to several years if you have a very bad credit score due to previous adverse credit.
Improving your credit score does not happen overnight, unfortunately, and the only way you can improve it is to conduct your financial affairs in a sensible fashion on a continuous basis.
8 ways to improve your credit score
1) Limit new credit applications
Applying for multiple credit cards or other unsecured credit, such as personal loans or HP agreements, in a short space of time is a no-no.
Multiple credit applications might indicate to a lender that you are “credit hungry” and in danger of taking on too much unsecured debt. So be wary when applying for new accounts, especially in the months leading up to making a mortgage application.
2) Register to vote
Being registered at your current address is one of the major ways in which you can improve your score. Lenders look for regularity and a traceable address history when assessing your application.
The date from which you have been registered on the electoral roll is seen as one of the main predictors of creditworthiness as it indicates how you have conducted any credit agreements while registered at your address(es) over a period of time.
3) Pay on time
One of the most important factors for lenders is how you manage debt. This means that lenders will mark you down if there are any missed payments on credit commitments or if you have exceeded your credit limit.
Mortgage or secured loan arrears have a severe effect on credit scores and will affect your chances of getting a new loan. It’s always advisable to set up a direct debit to make regular, minimum payments.
4) Reduce credit card balances
Lenders do not like large outstanding credit card balances. It indicates that you may have underlying credit issues, and they may consider you a higher-risk borrower.
The reason for this is that credit card debt is seen as a form of short-term credit. If large balances have been built up and have not been repaid, the lender may suspect you of overspending.
5) Close any unused accounts
Many people have old accounts that remain on their credit reports, such as unused credit cards or old joint accounts from previous relationships. It’s worth checking your credit file to see if you have any accounts like this and then closing them down. This should improve your credit score.
6) Review your credit history
It’s important to download your most recent credit report to review your personal details and credit history. You can apply for a credit report from any of the credit agencies mentioned above and check your credit score prior to applying for a mortgage.
By checking all your accounts you can see whether you have any potential issues on your credit profile. Sometimes, there may be minor negative information which can have an adverse effect on your credit score.
Often, people are unaware of late payments or minor defaults, which may not be their fault but which are picked up when credit checks are carried out as part of the credit scoring process.
7) Repay any adverse credit
When a lender checks your credit score, they want to see that you are a reliable borrower with well-managed accounts. Adverse credit, such as County Court Judgements or Defaults, indicates the opposite of this.
Having said that, not all lenders take a blanket approach to adverse credit. In special circumstances, such as if you have small debts that have been repaid in a short period, some lenders may be more flexible.
8) Length of time accounts have been open
Your credit score will improve according to the length of time you have held accounts. When checking with credit bureaus, lenders like to see that you have had a bank account open for a number of years rather than several weeks.
A long credit history and evidence of using but repaying credit on time tends to make the mortgage process easier as lenders will assess you as being lower risk.
Looking for a mortgage? Get in touch
At Goldmanread, we have a great deal of experience helping home buyers secure mortgages, even with bad credit.
We understand the mortgage market and know which lenders will be more flexible about credit history, and even those who do not use credit scores at all as part of their loan assessment.
Please call us on 0330 127 1489 to arrange a consultation.
Frequently asked questions about building up credit for a mortgage
How often should I check my credit report?
It’s worth checking your credit report at least once a year, but more frequently if you are considering applying for a mortgage.
Are all credit reports the same?
Not all credit reports are the same, and often, information registered on one report may not be reflected on another. That’s why it’s important to check your credit score regularly and rectify any discrepancies.
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