Why Credit Scores Matter For Your Mortgage Application

When you apply for a mortgage, the mortgage provider will assess your suitability for borrowing. This is likely to be the biggest sum of money you’ve ever borrowed, so their underwriters will do their due diligence on all aspects of your application. They will look at your current financial situation and your history of borrowing. Your credit score plays a vital role in this.

Here we’re looking at why credit scores matter for your mortgage application. We’ll detail what a good credit score to buy a house is and run through some handy tips for improving your credit score.

Mortgage lenders use your credit score to understand how reliable you’ve been at paying back debts in the past. This will inform them how you might behave in the future and if there is any chance you’ll get into financial difficulties with paying back a mortgage.

Your credit score isn’t by any means the only financial factor a mortgage lender will look at. They will ask for your payslips and bank statements to understand your earnings and outgoings to get a picture of your current financial situation. This is used alongside factors like your credit score to build an overall picture of your suitability for a mortgage. As a general rule, the smaller the deposit you have to put down the more important your credit score will be. When you’re buying a house with a partner on a joint-mortgage, the lender will assess both of your credit histories. It’s therefore important to check that the other person has their credit history in order too.

Your credit score can also impact the potential mortgage rate you’re offered. For example, special introductory rates or other mortgage offers may only be available to people with a credit history that meets certain criteria.

In the UK, your credit score is determined by three credit reference agencies, Experian, Equifax and TransUnion. As they are separate agencies, you’ll get a different score from each. With Experian, you’ll get a score out of 999, with Equifax it’s out of 700, and it’s out of 710 for TransUnion.

The definition of a good credit score varies with each agency, but the following is a good guide:

• 700 and above with Experian is a good score. 800 and above is considered excellent.
• 475 and above is an excellent score with Equifax.

Between 628 and 710 is an excellent score with TransUnion.

There are a variety of things you can do to improve your credit score. They include:

• REGISTERING ON THE ELECTORAL ROLE

While this has nothing to do with your capacity to borrow money, being registered on the electoral role helps lenders confirm your address. It can also help the lender to trace your credit history.

• REVIEWING YOUR CREDIT HISTORY AND SCORE

You can check your credit score and history with one of the credit reference agencies named above. First and foremost, it means you can check that the information they have about you is correct. If it isn’t you can ask for things to be removed, which can help boost your score. Once you know your score, you have an idea of your suitability to borrow. If it’s low you may want to spend some time working on it before you apply for a mortgage.

• BEING SELECTIVE ABOUT YOUR CREDIT APPLICATIONS

Too many can suggest that you’re not creditworthy or you’re desperate for credit. Neither of which will help you with your application.

• PAYING YOUR BILLS ON TIME

If you have a credit card or loan, paying your bills on time will demonstrate your capacity to borrow. Any slip up, however small, may suggest to a mortgage lender that you’re not responsible with your borrowing.

• KEEPING OLDER CREDIT ACCOUNTS OPEN

This demonstrates a capacity to borrow and pay back over a sustained period of time.

• REDUCING YOUR DEBT-TO-INCOME RATIO

This is the proportion of debt you have in relation to the money you have coming in. Lenders like applicants with a lower ratio as it means you will likely have the funds to meet your mortgage payments.

• REMOVING OUT OF DATE FINANCIAL ASSOCIATIONS

If you had a joint account with flatmates or you’ve separated from a spouse, make sure you remove these links from your record. If you don’t, their current and future borrowing habits could impact your credit score. 

Remember, your credit score is just one factor in your mortgage application. A good credit score won’t be the sole reason you get accepted for a mortgage, but it will certainly help your application. It’s key to stay on top of it and make sure you follow the above steps to boost it as much as possible.

And if you’re looking to buy a new home or get your foot on the property ladder, get in touch with us today to discover our brand-new homes located across the UK.