Buying Your First House? Get To Know The Credit Score

A credit score is numerical grade that shows lenders how good you are at paying back money on time. It looks at things like whether you've paid your bills on schedule, how much debt you have, how long you've had credit, (aka. how long you’ve had a bank account) if you've recently opened new accounts, and the types of credit you've used.

Credit scores play a massive part in whether or not you can get approved for a mortgage. Mortgage lenders use this score to determine whether they’re comfortable to lend you money and if so, how much they’re willing to lend you. The higher your credit score (aka: a “good” credit score), the better it is, in which case you’re more likely to get a mortgage at a lower interest rate and you’re therefore reducing the amount you pay back over time, opposed to a lower credit score. Credit scores form part of a pack of financial things to consider when buying your first home, and our helpful ‘cost of buying a moving’ guide will explain the other financials in detail.

Credit scores usually fall between 300 and 850, with higher numbers suggesting you have a better chance at a) securing a mortgage and b) securing a mortgage with a better interest rate. What credit score you need to buy a house depends on what house you’re buying and how much you need to lend to buy it, but generally, a good credit score to buy a house with the best interest rates would be between 670-850, whereas you may still be able to secure a mortgage deal with a credit score that falls below that, although it might not be on the best terms.

Martin Lewis’ Money Saving Expert website recommends you choose from the three major credit reference agencies: Equifax, Experian, and TransUnion. You're also entitled to a free copy once a year through AnnualCreditReport.co.uk. It’s free, quick and easy and you should have your credit score sent to your email address almost instantaneously. Once you’ve got your score, it’s time to see how you stack up on the credit score rating chart.

Excellent (800-850): You're in the top tier! Lenders love low-risk borrowers like you, offering the best deals on loans.

Very Good (740-799): You're doing great. Your solid credit history speaks for itself, showing responsible money management, which means you’re very likley to get a good mortgage deal.

Good (670-739): You're in a good place. You've got a decent credit profile, so you should just about quality for the better mortgage deals, though it’s not guaranteed.

Fair (580-669): Not bad. Your score suggests some credit bumps or a shorter history, which might mean higher rates or loan hurdles.

Poor (300-579): It's tough, but there's room to improve. You might face challenges getting credit, or you might pay higher interest rates.

A not-so-great credit score (579 or less) often stems from missed payments on accommodation or credit card fees, high credit card balances, or past financial challenges like collections or bankruptcy. Additionally, having a short credit history, i.e. you might not have had a bank account for a long time) or making too many recent credit enquiries, such as credit cards, payday loans or bigger loans can also play a part.

If your credit score falls below the desired range, don't panic, as there are steps you can take to improve it:

• Check your credit report for any potential errors. ClearScore and Experian are both free and  easy to use. 
• Always pay bills on time.
• Lower your debt, especially on credit cards.
• Avoid applying for new credit often, such as credit cards, payday loans or bigger loans.
• Keep old accounts open to maintain a longer credit history.

Your credit score plays a big role when you're ready to buy a home. It affects whether you can get a mortgage and what kind of deal you'll get. Knowing what makes a good credit score and how to make yours better can set you up for success in buying your dream home. So, by keeping your finances in check and handling credit wisely, you'll be all set to dive into the adventure of owning your own place.