Updated 22 January 2021
There’s a common misconception that you need a minimum credit score to get a mortgage. However, each lender will view your credit history differently, depending on factors like your age, income and the reference agencies they use, which all have slightly different scoring systems. Here’s everything you need to know about your credit score and mortgages.
Your credit score or rating is essentially a picture of how reliable you are at borrowing money, in the eyes of a particular agency or lender. Your score is improved by positive actions, such as regularly paying off loans on time or using a credit card sensibly. Meanwhile it’s adversely affected by negative actions like missing payments and going over your agreed credit limit. So far, so obvious. However, none of us has a ‘universal credit score’, as each lender interprets our history slightly differently. Most use similar criteria to assess how good your credit history is, but what is considered a major negative by some might not be so harshly treated by others (and vice versa).
There isn’t a set number that will automatically make you eligible for a mortgage. This is partly because getting a mortgage depends on much more than your credit score, and partly because agencies and lender may use wildly different scoring systems, so the numbers simply aren’t comparable.
That said, it’s always the case that the higher your credit score, the better your chances are of securing a mortgage offer and getting access to attractive interest rates. However, if your credit score isn’t considered at least decent, it’s likely you’ll struggle to get a mortgage.
Currently there are three major credit reference agencies (CRAs): Experian, Equifax and TransUnion (previously known as Callcredit). Each of these uses their own unique credit scoring system. Experian’s system ranges from 0-999, and anything below 721 is considered poor. TransUnion scores borrowers from 0-710 (for some reason) and also has five ‘rating’ bands (with five being the best and one the worst), and any score less than 566 (which is the bottom of band 3) is considered poor. Equifax has a scale which runs from 0- 700 and anything below 380 is poor. So you can see how very different the scales are.
If you’re below a particular threshold that is considered ‘good’, you should focus on building your score as much as possible before applying for a mortgage.
Each CRA assesses your credit history a bit differently and uses a unique scoring system. Here’s a rough guide to what the three biggest consider a good credit score:
If you’re looking to access the very best mortgage rates, you could try and bump your credit score up into the ‘excellent’ category:
There are one-off actions that can improve your credit score, such as registering yourself on the electoral roll and clearing errors on your credit report. However, careful, long-term credit use is the most effective way to improve your credit score.
It’s easy to think that never taking out a credit card would show you’re good with money, but it can actually lower your credit score. That’s because lenders don’t know how reliable you’re going to be with repayments, as there’s no record of you ever borrowing. If you’re looking to improve your credit score, try:
It’s tricky to say how long it will take for you to see improvements in your credit score. If you’ve picked up a negative mark, such as a missed payment or a time when you went over your credit limit, it will stay on your report for six years.
Even if you’re taking all the right steps to improve your credit score, delays in reporting from lenders can mean it takes a good few months to see your score move in the right direction. For example, it could take weeks for a positive action like registering on the electoral roll to show up on your credit report.
Yes. Sites like Clearscore let you see your monthly credit report for free. All you need to do is make an account and you can track how your actions are helping or hindering your credit score. Bear in mind that this score isn’t definitive – again, it’s just one agency’s interpretation of your borrowing and repaying behaviours.
There are mortgage providers that will accept customers with a poor credit score and/or negative marks on their credit record. For example, Buckinghamshire will accept people with poor credit, small County Court Judgements (CCJs) that are more than six months old and even an Individual Voluntary Arrangement (IVA) as long as it was paid off five or more years ago. However, it states that this is only for certain products, and there’s no guarantee you’ll be accepted.
If you’re looking for expert advice and to access the best rates, it’s wise to speak to a specialist mortgage broker or provider who deals with customers with bad credit. They’ll advise you on how to improve your chances of being accepted and find products that suit your circumstances.
Mortgage lenders will typically look back over the last six years of your credit history. If you’re young and only have a couple of years’ credit to examine, lenders may be more cautious to lend to you. However, there’s no set timeframe that will automatically boost your credit score. A 25-year-old in regular, stable employment who uses their credit card sensibly could have a better credit score than a 50-year-old with lots of debts.
The key thing to remember here is that you don’t just need years of credit to improve your score – those years of credit have to be good credit. Bankruptcy, CCJs, IVAs and other bad marks will stay on your file for six years, so it’s highly likely you’ll need to wait for these to be wiped before being accepted for a mortgage.
If you believe there’s a mistake on your credit file, such as an incorrect missed payment, you’re entitled to take it up with the company that has registered the error. It can be time consuming and frustrating, but it’s worth doing as an error on your credit report could unfairly exclude you from getting a mortgage.
As well as taking the steps above to build a strong credit history, there are other ways to get yourself in the best financial shape for a mortgage:
Once you’ve built up your credit score to the best level you can achieve, contact a mortgage broker so that they can find you the best available mortgage deal and interest rates.
Let us match you to your
perfect mortgage adviser