Getting to Know Your Credit Score
Imagine being in a situation where someone asks you for a substantial sum of money. You'd naturally want the reassurance that they can repay it, right? This is the perspective that lenders take when deciding whether to approve your mortgage application.
Your credit score serves as a pivotal factor in how lenders assess your "creditworthiness." Although lenders consider your credit history, it’s still possible to get a mortgage even with a less-than-stellar credit score. We’ll explore various strategies for improving your credit, and delve into what it means to have a strong credit score.
What’s a credit score?
A credit score, also referred to as a credit rating, is a three-digit numerical representation of your reliability to borrow and repay funds issued to you by lenders. The higher your score, the better your creditworthiness. Essentially, a higher credit score enhances your likelihood of approval for various forms of credit, including mortgages, loans, and credit cards.
Factors impacting your credit score
In layman’s terms, your credit score is shaped by your past financial conduct. Your score is formulated using information from your credit report, which includes details on how you manage your bank accounts, data from the electoral register, records of bankruptcies, and a history of any credit-related activities you've engaged in over the past six years (such as mortgages, loans, or overdrafts).
How does your credit score influence your mortgage application?
The ideal credit score for a mortgage application can vary from one lender to another. A low credit score doesn't always imply poor credit repayment - sometimes, it's due to a lack of credit history. For example, if you've never borrowed or paid off an overdraft, your score may appear low because there's no track record of you reliably repaying money.
If you suspect your credit isn't strong enough to secure the right mortgage deal for your situation, we strongly recommend taking steps to build your credit promptly. Doing so will increase your chances of finding a mortgage tailored to your needs.
Securing a mortgage with a less-than-perfect credit score
Getting a mortgage with a poor credit score is certainly feasible, provided you can demonstrate responsible financial management to potential lenders. It's worth noting that your application might take longer to process compared to someone with a higher credit score, as more investigation will be required.
To enhance your chances of mortgage approval with a low credit score, consider the following steps before applying:
Clear outstanding debt
Ensure all bills, including rent, phone, and utilities, are paid on time
Close any unused credit lines and bank accounts
Register on the electoral roll
Check your credit report for discrepancies/errors.
Strategies to enhance your credit
If you're dealing with a low credit score or have no credit history, it's advisable to work on building your credit profile before applying for a mortgage. Here are several ways you can help to boost your credit score:
Avoid using payday loans and 'pay-in-three' services, as they can adversely affect your credit rating
Think about joint accounts if you cohabit with a partner
Use services where you can link your bank account to your credit report
Have a plan in place to steadily pay back debt
How an adviser can help
Regardless of whether or not you have a good credit score, there are a number of routes you can take to get onto the property ladder.
If you’re concerned about your credit score impacting your chances of being approved for a mortgage, we recommend consulting with an adviser. While they cannot provide financial advice, they can shop around to help you find a mortgage suited to your needs.
