You’ve spent years saving up your deposit, months comparing properties, and even imagined throwing the perfect housewarming party. The only thing left is to secure your mortgage.
To get that all important loan, your credit rating must be considered good enough by your bank. There isn’t a minimum credit score needed for buying a house, and the exact score you need varies from lender to lender. Put simply, the higher your credit score is, the better your chances are of being offered a better deal on a mortgage.
There are three main credit agencies you can use to check your credit scores: Experian, Equifax and Callcredit. All three will give you an independent score based on how you’ve handled money in the past. This helps predict how much of a risk you are to the mortgage lender. Their credit reports look at your past borrowing and repayments, how much of your available credit you routinely use, how many payments you’ve missed, your electoral roll status and several other factors to create a score.
There isn’t a universal score or credit rating, so for a complete picture of your financial footprint, you’ll need to check with all three agencies. Read more about how to check your credit rating.
Each credit agency has its own slightly different rules for what is and isn’t a good score. The lower the score, the higher the risk to the lender. Experian ranks their results from 0–999, with a score of 881 or higher considered good and over 960 rated as excellent. Most Experian credit scores fall between 600 and 750.
Barclaycard customers can check their Experian credit score for free – conditions apply.
Equifax ranks its scores from 0 to 700, with a score of 420 or above considered to be good – if you get this score, you should be happy, as it’s above the UK average of 380.
Callcredit meanwhile takes a simpler approach and ranks you from 1 to 5, with scores of 4 and 5 considered good.
A low credit score doesn’t automatically mean you won’t ever be able to get a mortgage for your ideal home. Even if your credit score is lower than anticipated, there are ways to improve it and boost your chances of being accepted for a mortgage.
Alongside your credit score, lenders use a host of other factors to determine whether to give you a mortgage. They look at your income, expenditure debt and savings, as well as your credit score to assess the risk of lending to you. If you have a good track record with your bank and have been a reliable customer for a number of years, that will help ease their concerns.
Equally, having an initial deposit of over 10% will work in your favour, or assistance from a Help to Buy scheme.
Your yearly income and ability to make monthly payments will also come into play – the longer you’ve been in work and paid off your monthly bills, the more likely it’ll be that you’ll be able to take your first exciting step onto the property ladder.
One way to improve your credit score is to use a credit-building credit card. Spend a small amount on it and then pay the card off in full every month. This will help raise your credit score, and also shows lenders you only use a small percentage of the available credit on offer – a key factor that credit agencies look at.
Check out our tips on how you can raise your credit rating even further.
Another tip is to speak to lenders with special expertise in buying houses where there are credit issues. There are lots of mortgage lenders out there who will help with hard-to-place mortgages, including for self-employed workers struggling to meet the requirements.
Your mortgage application is less likely to be successful if your credit rating has room for improvement, or if you don’t have a history of borrowing. As well as improving your credit score to up your chances of qualifying, you can also look for a bad credit mortgage. Because lenders view this type of mortgage as higher risk, the terms of the loan (especially the interest rate) will probably be less favourable than if you had a good credit rating. You can talk to an independent ‘whole market’ broker for an impartial overview of your options.
For instance, you may have to put up a larger deposit. A Help to Buy ISA can help first-time buyers raise the required down payment. As long as you add at least £1,600, the government will top up your savings by 25%, up to a maximum £3,000 bonus. Conditions apply, including a maximum amount you can put in each month and an upper limit on the property price.
The Help to Buy ISA will no longer be available to new savers after 30 November 2019, although you can still continue adding to it if you already have one, and claim your bonus at any point up to 1 December 2030.