Key Points:
- There isn’t a single, magic credit score you must have to get approved for a mortgage
- Having a healthy credit score will generally make it much easier to secure a mortgage
- A poor credit history doesn’t automatically shut the door on homeownership
When applying for a mortgage, lenders will look at lots of different factors to decide whether they should lend you the money for the property you’re after, and your credit score is one of the most important factors.
It not only reflects how responsibly you manage credit, but also helps lenders assess how likely you are to meet and maintain your monthly repayments.
Despite the common myth that poor credit ruins your chances of securing a mortgage, you may still be accepted even if your score is on the lower side.
In this guide, we’ll walk you through how your score can influence your mortgage options, interest rates, and chances of approval.
What is a Credit Score?
There are three main credit reference agencies in the UK: Equifax, Experian, and TransUnion.
Each collects information about you from public records, lenders, and other service providers to create a credit score. This score indicates how likely you are to repay borrowed money, based on your past use of credit and how you’ve managed your finances.
It’s also important to know that you don’t have just one credit score. Each agency may hold different information about you and uses its own scoring system, meaning your score can vary between agencies. Your score can also change over time as your circumstances change.
In addition, lenders and service providers carry out their own credit assessments when you apply. These typically use information from your credit record alongside other factors, such as affordability and your account history.
You can check your credit score for FREE by clicking here.
What Credit Score Do You Need for a Mortgage?
There isn’t a single, magic credit score you must have to get approved for a mortgage. Sorry if you were hoping for one, but it simply doesn’t exist.
That said, having a healthy credit score will generally make it much easier to secure a mortgage. Lenders like to see a strong track record of managing credit, and the better your score, the more confident they tend to feel.
However, a poor credit history doesn’t automatically shut the door on homeownership. Even if your credit issues include things like CCJs or IVAs, buying a house isn’t necessarily off the table. Your credit score is just one piece of the puzzle. Other factors, such as the size of your deposit and affordability, play a big role in whether your application is approved.
If your score is on the lower end, speaking to a mortgage broker can help you access niche lenders that specialise in poor-credit applications. Plus, at The Levels Financial, if your score is currently too low for any lender to make you an offer, we support you in building it to a level where you can be accepted.
What Factors Affect Your Credit Score?
People are often confused about what actually impacts their credit score.
Take student loans, for example. They’ve dominated the headlines in recent weeks, with high interest rates causing many former students to see their balances increase rather than decrease. As a result, plenty of people are now worried about whether this could affect their chances of getting a mortgage in the future.
However, your student loan has absolutely NO impact on your credit score.
To make things easier to understand, let’s break it down into three simple categories: what helps your credit score, what harms it, and what has no impact at all.
What’s good for your credit score?
- Only borrow what you can comfortably afford: If you’re going to use credit, make sure you can easily meet at least the minimum repayments each month. Falling behind on payments is one of the quickest ways to damage your credit score.
- Set up direct debits where possible: Lenders like to see consistent, reliable payments. Setting up direct debits for things like your mobile phone contract or credit card can help ensure you always pay on time and in full.
- Stay within your credit limits: Try to keep your balances well below the amount you’re allowed to borrow. Using a smaller portion of your available credit signals to lenders that you’re managing credit responsibly.
- Make sure you’re registered to vote: Being on the electoral register helps companies confirm your identity and address.
- Check your credit report regularly: Mistakes do happen, and inaccurate information could be affecting your score. Review your report from time to time and contact the relevant company if something doesn’t look right.
What’s bad for your credit score?
- Opening new accounts too frequently: Opening a new bank account can cause a small, temporary dip in your credit score. That’s normal. But if you do it too often, your score may not have enough time to recover between applications.
- Applying for credit too often: Every time you apply for credit, a hard search is recorded on your report. Multiple applications in a short period can lower your score, even if you’re rejected.
- Missing payments: Missing regular payments can quickly damage your credit score. If payments continue to be missed, lenders may record a default on your report, which can stay there for up to six years.
- Borrowing more than you can afford: If debts become unmanageable, you may need formal solutions such as a Debt Relief Order or Individual Voluntary Arrangement, which can significantly reduce your credit score.
- Having little or no credit history: If you’ve never used credit before, you may have a low score. That’s because lenders want to see evidence that you can borrow and repay responsibly.
What doesn’t affect your credit score?
- Previous occupants at your address: It doesn’t matter if the person who lived at your address before you was bankrupt or a billionaire.
- Friends or family you live with: Simply living with someone doesn’t affect your credit score. Credit reference agencies only link you financially if you share financial products, such as a joint mortgage or bank account.
- Very old credit history: Most information on your credit report stays there for around six years, and lenders tend to focus on more recent activity. So, something like a missed credit card payment from ten years ago won’t affect your credit score today.
- Checking your own credit score or report: A common question we hear is: “Does checking my credit score lower it?” The answer is no. You can check your own credit report and score as often as you like without it having any negative impact.
My Credit Score is Low: What Should I Do?
So, you’ve checked your credit score and it’s not where you’d like it to be. The good news is this doesn’t mean the end of your journey to homeownership. Here’s exactly what you can do next to put yourself in the best possible position to be approved by a lender…
Strengthen your credit
It’s worth taking a little time to strengthen your credit score first. To achieve this, you should:
- Pay off any outstanding debts you have
- Ensure you’re registered on the electoral roll
- Use a credit card for a small purchase each month, then pay it off on time
- If you’re renting use CreditLadder to report rental payments to credit agencies
If you do all of these things over the course of several months, you should see your credit score start to improve, helping you gain access to better mortgage rates.
Increase your deposit
While working on your credit score, start trying to add as much as possible to your existing deposit.
The larger the deposit you can put down, the better your chances of securing a competitive mortgage deal. A bigger deposit reduces your loan-to-value (LTV), which means you’re borrowing a smaller percentage of the property’s value.
From a lender’s perspective, a lower LTV represents less risk, so applications with larger deposits are often looked on more favourably and may qualify for better rates.
Find a mortgage broker
Finally, work with an independent mortgage broker who understands the market and knows which lenders are most likely to suit your circumstances.
At The Levels Financial, we have access to over 100 lenders, allowing us to find the lender and deal that best fits your situation.
In many cases, specialist or subprime lenders only operate through intermediaries, meaning you’ll need to go through a broker to access these options.
If you’d like to book your free consultation with one of our award-winning advisors, you can do so by clicking HERE.
Because we always have your best interests at heart, you need to know…
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.
