When looking at mortgages to buy a house one of the most common questions we get asked is ‘what credit score do I need?’. Unfortunately, there is no definitive answer to this as each lender will have a different policy and view on what credit score they will be willing to accept. The higher your credit score the better impression that will give to a mortgage lender.
Broadly speaking any credit scores under 500 are unlikely to be accepted for a mortgage as they would be considered high risk. However, this doesn’t necessarily apply across the board, it will just depend on the lender you are speaking to as some can consider a lower rating when it comes to buying a house.
Can you get a mortgage with a credit score of 500?
Most credit rating agencies have five categories for credit scores – excellent, good, fair, poor, and very poor. The exact score you need to get a mortgage will vary from lender to lender depending on their underwriting criteria. It is possible to get a mortgage with a credit score of 500, but it will be more difficult as not as many lenders will accept a rating that low. It is worth noting that a credit score of 500 does not necessarily guarantee you will be accepted, and it is possible that even with a minimum of 500 you could apply and still be declined.
There are specialist lenders that we work with here at Finance Advice Centre that can help those with lower credit scores. As long as you can show and give the lender confidence that you are financially able to repay the mortgage you can be approved by a specialist lender. It’s important to note that each credit reference agency uses a different scoring system, so it is advisable to check with all agencies before you apply for a mortgage.
What is considered to be a good credit score?
As each agency will use a slightly different process, a good score can vary from one agency to the next. For example, here are some typical good credit scores from the credit check agencies:
- Experian – a score of 881-960 is considered good and a score of 961-999 is seen as excellent.
- Equifax – a score of 420-465 is a good score and 466-700 is considered excellent.
- TransUnion – 604-627 is a good score and 628-710 is excellent.
With such variation between agencies, it can be tricky to know whether your score will be accepted or not. When you have a clear idea of your credit score, you can research a range of lenders and speak to an adviser to find the best option for you if you have a lower credit score.
How to increase your credit score?
If you are worried that you won’t be able to get a mortgage because your credit score is too low, there are steps you can take to boost your score and the other aspects of your finances that a lender will look at. As well as your credit score lenders will use a range of other factors to decide whether to give you a mortgage.
They look at your income, savings, and expenditure debt to assess the risk of lending money to you. Having a good track record with your bank, if you have been a reliable customer for a number of years will help give a good impression of you financially. Also, having a deposit of over 10% or a boost from the Help to Buy scheme will help you.
One way you can improve your credit score is using a credit-building credit card. You spend a small amount on the card and then pay it off in full every month. As well as helping to increase your credit score it will show lenders that you only use a minor percentage of the available credit on offer, which is a key factor that credit agencies will look at. Some other things you can do to help your credit score include:
- Check your file for any mistakes – your score can be affected by any errors or fraud, so it is important to look out for that and get in touch with the company who have made the mistake.
- Break away from any past financial partners – removing financial ties from anyone whose poor credit could be damaging yours will help to increase your score. On the other hand, being linked to a responsible partner with a good score will benefit you.
- Register to vote – being on the electoral roll helps credit agencies confirm your personal details.
- Reach out to your lender – if you’re struggling with any payments or if you are having financial difficulties don’t keep it to yourself. Speaking to your lender will help to get you back on track and put a plan in place to help you not sink further financially.
Why is it important to check your credit score before applying for a mortgage?
Some people, if they have never applied for a mortgage before or don’t have much knowledge on the subject, make the mistake of applying without knowing their credit score, or their lender’s position on whether they will lend to someone with their circumstances. It is important to check you’re eligible before applying for any type of credit as it could damage your credit report.
Lenders can see any previous loan applications when checking your credit report and a recent rejection for credit could hurt your chances of getting approved for a future loan.
What information do credit reference agencies have?
Credit reference agencies can get information from various sources and in general keep the following:
- The electoral roll – it shows how long you have been registered at your current address
- Public records – this shows any bankruptcies, county court judgements, debt relief orders, IVAs, and administration orders
- Account information – gives a view of the financial status of your existing accounts, whether you have made payments on time and how much you have borrowed
- Home repossessions – information from the Council of Mortgage Lenders about homes that have been repossessed
- Associated financial partners – anyone you are financially connected to, for example if you have a joint bank account with a partner
- Previous searches – companies and searches you have looked at in the last 12 months, e.g. if you have made a credit application.
If you have a low credit score do you need a large income to get a mortgage?
When deciding whether to give you a mortgage lender will look at a range of factors that affect affordability. Your income is one of those factors as it impacts your ability to repay your mortgage and having a sufficient income that will allow you to do that is important.
Lenders will compare your income with your outgoings for payments such as bills, debt repayment, car insurance etc. If your income can cover your outgoings with the addition of a new mortgage and any associated costs without being stretched too thin a lender can decide to approve you. Having a lower income that may not comfortably cover all of those payments can be a concern for lenders, especially if you have a low credit score as well. If you have a mortgage broker, they can take the time to calculate the most affordable and viable route for you and find specialist lenders that would be willing to consider your application even if you have a lower credit score.
Which credit reference agencies to mortgage lenders look at?
UK mortgage lenders tend to look at three main credit reference agencies: Experian, Equifax, and TransUnion. There are many others referred to by lenders across the country but having a credit score checked by one of these will give you a better idea of where you stand in relation to your mortgage eligibility with your credit.
As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments.
This article is for information only and should not be seen as advice or a recommendation to take action.