There is no specific answer for what credit score you need for a mortgage as there isn’t just one set credit score. When you apply for a mortgage or any other type of credit, lenders work out a credit score for you. This is to help them determine whether you are a risk worth taking, i.e. if you’ll be a responsible, reliable borrower and are likely to repay the loan. Typically, a higher credit score means you are seen as lower risk, the more points you score, the more likely you are to be approved for a mortgage, and at better rates too.
How do lenders make their decisions?
Not all lenders see things in the same way or have the same criteria, and so they are likely to have different ways of reaching their decisions. However, all of them will look at some key factors to help them decide. These include:
- Details on your credit report including your credit history and public record data (County Court Judgements and Individual Voluntary Arrangements)
- Information you have given them on your application form
- Information they might already have about you, for example if you already have a bank account with them
- Their own policy on lending which could be different to other lenders
Looking at your credit report will provide them with a thorough insight into your credit history and will show things like how much you owe on credit cards, if you’re registered to vote, and if you have missed payments in the past. They will combine all of these factors and give you a credit score of their own.
Your affordability for a mortgage
Mortgages are not just about your credit score. Lenders will want to see that you can afford to repay your loan before they approve you, and be sure that you are less of a risk to them. Therefore, as well as seeing your credit history, they will want to look at how much you earn and how much you spend. Not only on credit payments, but regular fixed costs such as childcare, council tax, car finance, and other outgoings you have on a monthly basis.
If you can prove to them that you can afford your mortgage repayments, even if your circumstances changed or if interest rates (and your monthly payments) went up, it could help you get a mortgage, even if your credit score is not the highest.
What can your credit score tell you?
The credit score you need to successfully get a mortgage varies as there is no one credit score or universal ‘magic number’. However, if you have a good credit score from one of the main credit reporting reference agencies, you are more likely to get a good credit score with your lender.
Checking your credit score before you start your mortgage application could give you an idea of how lenders might view you, based on the details in your credit report. Also, it can help you work out if you need to improve your credit score before you apply.
What is a good credit score to get a mortgage?
This can vary significantly depending on which of the credit reference agencies you use, as well as the mortgage lender. For example, if you have a credit score between 561 and 720 with Experian (the UK’s largest CRA) it would be considered as a poorer credit score than normal. With this Experian credit score you can get mortgages, but you will probably have to pay higher interest rates. However, if you check your credit score with Equifax or TransUnion and it is 600, then you would be considered in quite a good position to apply for a mortgage.
Keep in mind that each mortgage company will have its own lending policy, so some will be more or less apprehensive about different parts of your credit profile. Some smaller or specialist lenders receive less applications and so could have more time to consider the details you provide on your mortgage application. For instance, if the credit issues are now resolved, or if there was a good reason for the mark in your credit history.
What if your mortgage credit check was poor?
Getting a mortgage with bad credit is by no means impossible but it will be more difficult and will likely mean that you will get higher interest rates and be required to put down a larger deposit. A lot of people have poorer credit scores simply because of their life situation, like young adults with a short history of credit, or individuals who have not been in the UK for very long.
Mortgage lenders want to know if you can reliably stay up to date with your monthly repayments without going into debt. So, demonstrating that you can manage simple credit cards, phone contracts, utility services etc could help you boost your credit score.
If you need advice on how to boost your credit score or have any other questions regarding mortgages contact Finance Advice Centre today.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
