What is the Lowest Credit Score Needed for a Mortgage?

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If you have searched for a mortgage in the past, you will know that your credit score will be checked by a lender on two occasions – the first is when you get a Decision in Principle (DIP) and the second when you submit a full mortgage application.

You might have found that your credit score has caused your application to be referred to an underwriter, or worse it might cause an outright decline with your chosen lender. This can be frustrating, but all is not lost.

This guide explains how to get a mortgage with almost any type of credit score. Let’s explore credit scores further.

What is a Credit Score?

A credit score is compiled from financial and public information by a credit reference agency. In the UK there are three main credit reference agencies lenders use:

The credit reference agencies will calculate your credit score using a range of factors including:

  • Your previous financial history,
  • If you are registered on the electoral roll,
  • Your current financial commitments,
  • How much credit is available to you.

Previous Financial History

This information allows a lender to see how responsible you have been with past debt. For example, if payments were made on time, whether you defaulted on a debt and if any county court judgements are in place.

Electoral Register

Lenders like to know that you are tied to a fixed location as it is riskier to lend money to someone who is transient. If you have a fixed location, the lender will know where to send correspondence and locate you if the money becomes outstanding.

Being on the electoral roll at a specific address allows lenders to tie you to a physical location and reduces risk if they want to lend you money.

Current Financial Commitments

Often overlooked, your current financial commitments can have a big impact on your affordability and credit score. For example, if you have multiple debts your credit score will be impacted, and the repayments of those debts will reduce your affordability.

How Much Credit is Available to You

This pertains mostly to flexible credit limits like credit cards. If you have a £1000 limit on a credit card and you have maxed the card, this will hurt your credit score. This is because credit reference agencies will see you as living close to your financial means.

Conversely, if you have multiple credit cards with no spending on them, this can improve a credit score. This is because you are managing your debt responsibly and comfortably living within your means.

What Credit Score do I Need for a Mortgage?

The type of tax you pay will differ depending on the location of the property you are purchasing.

Every lender in the UK has a different risk profile and every lender has different credit score requirements. Typically, the lower the interest rate offered on a mortgage, the higher your credit score will need to be. High street lenders are normally the most difficult to arrange a mortgage with if you have a medium or bad credit score.

The great news is there are lenders for almost all credit scores. A whole of market mortgage broker, like Boon Brokers, will be able to match your credit score to a lender in most cases. In short, you can get a mortgage with adverse (bad) credit.

You may run into difficulties if you have multiple or recent County Court Judgements (CCJ), if you are in an Individual Voluntary Agreement (IVA) or if you have been declared bankrupt. Even in these extreme circumstances, it is still worth discussing your financial situation with a mortgage broker as you may be surprised. There are a handful of lenders who will consider poor credit histories.

The interest rate for adverse credit mortgages is typically much higher than standard mortgage products.

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What is Considered a Good Credit Score?

A good credit score is different between all credit reference agencies. For example, you might find Experian displays your credit score as good and Equifax displays it as fair. This is because each agency has different ways to assess your credit score.

Which brings us onto an important point. If you have a good credit score with one agency but not so good with others, it is worthwhile discussing this with your mortgage broker. Each lender has a preference of which agency to use, so matching a good agency profile with a lender that uses that agency can save you money (and stress).

What Happens if I Have a Bad Credit Score?

If you have adverse credit, it is a good idea to find out how each agency views your credit score. As mentioned, different agencies have different profiles for you, and you might find that one agency is more favourable than others.

There are credit score checking services online that compile your credit score from all three major credit reference agencies and display these side by side for comparison. Check My File is one of the most popular online credit score checking services available in the market.

Having a bad credit score does not exclude you from obtaining a mortgage in most cases and it is a great idea to discuss your situation with a whole of market mortgage broker to see what options are available to you.

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How Can I Improve my Credit Score?

The easiest way to avoid an early repayment charge is to wait until the end of the product term. For example, if you have a product with an early repayment charge for 5 years, waiting until the 5 years has elapsed will avoid the early repayment charge.

Improving your credit score is a matter of smart money management. Here are some tips to help you improve your credit score.

  • Pay off credit cards. Making minimum payments on a credit card is a popular way of managing credit card debt, but it can often be detrimental to your credit score as the debt takes a long time to clear – especially if you continue to use the card. Where possible clear your credit card debts.
  • Pay debts using savings. Your savings account will likely have a lower interest rate than your debt accounts. If you have savings with a lower interest rate than your debt, use your savings to clear that debt.
  • Clear defaults and CCJs. Defaults and CCJs are active on your credit score for 6 years from the point of registration. Clearing these will prevent further recovery action and help them drop off your record sooner – it will also show as satisfied on your credit file which does less damage to your score.

Speak to a Whole of Market Mortgage Broker

Finding a good mortgage can be difficult regardless of credit score but it can be even more tricky if you have adverse credit. It can also be difficult to find a reputable Whole of Market mortgage broker.

Boon Brokers is a UK-based Whole of Market Mortgage, Insurance and Equity Release Broker. The best part is that we will not charge you at any stage of the advice or arrangement process. Contact Boon Brokers today for free, no obligation mortgage advice.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.