Before you can be lent money to buy a home, you must be able to demonstrate that you are a reliable borrower.
One of the most efficient ways that banks can do this is via your “credit score”, a three-digit number that shows how reliable you are at repaying your debts, which ranges from “very poor” to “excellent”.
In the UK, your score is determined by three main credit reference agencies (CRAs) – Experian, Equifax and TransUnion – who securely hold onto information about your financial history to determine your score.
While a good credit score is crucial for you to get access to the best deals for any loan – including mortgages – there is no magic number that will be the difference between a successful and unsuccessful application.
How to check your credit score
Whenever you apply for any credit, the lender will look at your credit history and credit score via one of the above CRAs.
You can also check with any of those three companies to see your own information. All you need are a few personal details to confirm your identity, which may include your recent addresses. Alongside this, you may be asked some questions about your financial history – such as when you opened a particular bank account or applied for a loan – so you may need any paperwork handy, too. You can also check your score via Moneysupermarket’s credit monitor.
Once there, you can obtain your full credit report, which will give you a score alongside some details about your financial history. It may also suggest steps you can take to improve your score.
It is particularly important to make sure that all of the information included in your credit report is accurate, as errors in your name, address or date or birth can lead to lenders declining your application for a mortgage.
What credit score do you need for a mortgage?
While there is no particular number that will mean you either can or cannot get a mortgage, a higher score will make you a more attractive borrower to a lender.
This is because there are many more factors a lender will consider alongside your score under the umbrella of “affordability”. These include:
- How much you earn
- How much you spend
- Any fixed costs, like childcare, council tax or travel
- Whether you have existing debt
- Whether you have a credit history – you need a good track record of sensible borrowing
What is considered a “good” credit score varies from one CRA to another, but here’s a rough guide to each:
- Experian – 881 to 960
- TransUnion – 604 to 627
- Equifax – 420 to 465
For the very best mortgage rates, you may want to aim to have your credit score in the “excellent” range:
- TransUnion – 628 to 710
- Experian – 961 to 999
- Equifax – 466 to 700
What a low score means for your application
Having a lower score may mean you are less likely to be accepted for a mortgage, but even those with a score at the very low end could still be approved.
However, it is likely that you will not have access to the full range of mortgage products available. Because lenders view such borrowers as higher risk, the terms of the mortgage (especially the interest rate) will probably be less favourable than if you have a good credit rating.
Some successful applicants may have never used credit and have a very low score as a result: if you can demonstrate this to a lender and show clear evidence, it may actually improve your chances.
Having a decent deposit will also boost your chances of a successful application: typically, anything more than 10 per cent of the value of the property will work in your favour.
If you have problems with your credit score, it may be a good idea to seek out a lender which specialises in working with people with these issues. The best way to find these is to speak to an expert mortgage broker for further advice.
