When it comes time to think about buying a home, you will need to also think about your credit score. As you will need a good credit score to get a mortgage, which is a type of loan that’s used to finance property such as a house, it’s important to understand how it works. But, in simple terms, you don’t need a specific credit score to get a mortgage, but your score does affect your interest rates and deals.
In this article, we will look at everything you need to know about credit scores and mortgages to help you get your dream home.
What Is a Credit Score?
Your credit score is essentially a 3-digit number which measures how reliable you are at borrowing and repaying loans or paying your bills on time. It’s important as it’s used to represent your credit risk, and many lenders use it when approving you for applications such as your mortgage. For more information, check out our guide to What Is Credit Score to learn all about what it is and how it is calculated.
A good credit score shows that you are trustworthy in paying bills and loans on time and in a good manner. But it can also determine the size of initial deposits and agreements and the meaning you might get for favorable terms such as lower payments and less interest.
The Minimum Credit Score For A Mortgage
There is no magic number in terms of what credit score you need to get a mortgage. As there are multiple credit reference agencies (CRA) there is more than one credit score. Meaning that the minimum credit score you need for buying a house differs. Your credit score only reflects the interest rate, the lower your score the higher your interest may be and vice versa.
Technically speaking, the lowest credit score for a mortgage falls into ‘poor’ or ‘very poor’ categories. These have the highest decline risk, but if you can prove that you can afford the payments to your lender, it may help you get accepted. However, the best practice is to have a ‘good’ or higher credit score rating.
What Is A Good Credit Score To Get A Mortgage
The exact credit score number varies since each CRA calculates your credit score slightly differently. The 3 main CRAs consider this a good credit score for a mortgage:
- Experian: 881 to 960
- TransUnion: 604 to 627
- Equifax: 420 to 465
When looking at a general guide to scores, this is how your credit score may reflect your mortgage:
- Excellent (800-999): You could be in line for the best mortgage deals with lower interest rates.
- Good to Very Good (670-799): You could get most of the best mortgage deals.
- Fair (580-669): You could get mortgage deals with reasonable interest rates.
- Poor (300-579): You may get a mortgage with higher interest rates.
- Very Poor (0-299): You may find it harder to get a mortgage without very high interest rates or may even get declined.
You can always check your credit score for free, and don’t worry if it does fall on the lower end. If you want to boost your ‘good’ to ‘excellent’, there are numerous ways to build your score. We’ve put together some Tips For Improving Your Credit Score which include paying back bills on time, spreading credit payments, putting yourself on the electoral role and more.
How Do Mortgage Lenders Make Their Decision?
Lenders don’t always just go off your credit score from CRAs when accepting your mortgage, and may even put information together to give you a credit score of your own. They will look at your credit report and combine it with some key factors including:
- Information on your credit report such as public record data as well as credit history.
- Information you’ve given them on your mortgage application form.
- Information they may already have of you, such as if you have a bank account with them.
- Their own lending policy, which differs from lender to lender.
Lenders will also look to see if you can afford your mortgage as well as your credit score before accepting your application. So they can also find how much your earn and how much goes out, including both credit repayments and regular fixed costs such as childcare, council tax and other monthly outgoing costs.
If you can show the lender that you are trustworthy with money through a high credit score you are likely to get accepted with better rates. But if you can show that you can afford your monthly mortgage payments, it may help you get a mortgage even if your score isn’t the highest.
Can You Still Get A Mortgage With Bad Credit?
If you have a bad credit score you might still be able to get a mortgage. If you have bad credit or no credit history, it is harder to get a mortgage and your application is less likely to be successful, but it isn’t ruled out.
Related: What Is Bad Credit?
If your mortgage application is approved regardless of your low score, you most likely will have high or very high-interest rates because lenders view this type of mortgage as high risk. A tip here is to speak with lenders who specialise in helping those with low credit scores to get a mortgage or talk to an independent whole-market broker for an impartial view of your options. You can also look for something called a bad credit mortgage.
How Can I Reduce My Chances Of Being Rejected For A Mortgage
If you are being rejected for a mortgage due to low credit score or no credit history at all the best option is to improve your credit score. This will also help you avoid higher interest rates when your application is improved.
Apart from building up your credit score, other ways to avoid having your mortgage declined are:
- Try and keep your credit use below 25%, this shows that you are responsibly using a credit card or overdraft.
- Avoid applying for anything that requires hard credit searches (such as loans or credit cards) at least 12 months before applying for mortgages.
- Save where possible and cut monthly costs, this will increase your affordability rating which can help you get accepted with a low credit score.
Credit Score and Mortgage Loans
If you’re worried about your credit score and how it will affect your mortgage, remember there is no magic number and your credit score will only really affect the interest rates. Don’t worry though, everyone’s financial situations are different, and lenders will see that and have their own criteria when it comes to accepting your mortgage terms.
When it comes to improving your credit score or with your mortgage, you can also borrow money to help pay your deposit or your monthly payments. To help we’ve got some tips for getting a loan, or read our article for getting a loan with bad credit. At Sunny we offer a wide range of loans for those with bad credit, meaning no matter what your score is our lenders can still accept you.
