Your credit score and mortgage are related. You need to improve your credit score if you want to be able to access the best mortgage rates. But how can you see what your current credit score is and how can you improve it? In this blog, we go through everything you need to know.
What is a credit rating?
A credit rating is a score that shows the likelihood of getting credit from a lender, such as a loan, credit card or mortgage. Lenders use this score to try to predict your future behaviour to see what the risk is for them to lend you the money.
This information is based on past behaviour and takes a lot of data into account. For instance, your credit score can fluctuate depending on the number of previous applications you’ve made, how much you owe and whether you’ve made your repayments on time. Your credit history may also affect the interest rate of the mortgage depending on which lender you are with, so this is also worth keeping in mind.
Mortgage affordability
As it happens with other types of credits, if you are looking for a mortgage, lenders will want to see if you can afford to pay it back. Therefore, they’ll look at your credit history and at how much you earn, and how much goes out.
But lenders also look at other factors besides your credit score to see whether to give you a mortgage. That includes your income, expenditure debt and savings, and whether you have a good track record with your bank. All of these factors will impact your approval.
Additionally, being able to put down a higher deposit will work in your favour. Anything over 10% will help you. So for example, if you are buying a £200,000 home and can provide a deposit of £20,000 you will be eligible for much better interest rates than if you were only able to put 5% down. If you can put 15%, 20%, 25% etc then even better.
How to boost your credit score
But what can you do if you want to improve your credit score? Besides making repayments on time, making other regular payments on time, such as council tax, utility bills and other payments you have on a monthly basis will also positively impact your credit score and chances of approval.
Establish your credit history
One way to improve your credit score is to get a credit card and spend a small amount on it regularly and pay the card off in full every month. This will allow lenders to see that you can manage your credit without any issues.
You can also grow your credit history with contracts and recurrent payments. For instance, your monthly rent payments, a mobile phone contract or any other monthly subscription paid from your accounts.
Pay all outstanding debt
Make sure you don’t have any big outstanding debt yet to pay and limit any new credit applications, as otherwise, lenders might think that you have recurring problems with owing money, which wouldn’t work in your favour.
Avoid making withdrawals with a credit card
Similarly, you should avoid making cash withdrawals from your credit account, as lenders would probably see it as poor money management.
Register to vote
This is a must. Many people aren’t aware of this, but registering to vote positively impacts your credit score. That is because lenders often use the electoral roll to verify your identity and to confirm you live at the address you used on your application form. You can register even if you live in shared accommodation or living with your parents.
Close unused accounts
When assessing a credit application, lenders may look at the total of unutilised credit cards that you have. This, however, might not always be the best choice depending on your circumstances, so make sure you understand all the implications of both closing your accounts and of keeping them open if you don’t use them before you make any decisions.
How to check your credit score
So how can you check your credit score? There are a number of different credit reference agencies which offer free or paid for services. Please contact us to discuss the different options.
Most of these agencies offer more comprehensive services for a monthly fee, including alerts when there are major changes to your score.
You should know that different agencies score you in different ways. Here is a comparison table for reference:
| Experian | Equifax | TransUnion | |
| Very poor | 0-560 | 0-438 | 0-550 |
| Poor | 561-720 | 439-530 | 551-565 |
| Fair | 721-880 | 531-670 | 566-603 |
| Good | 881-960 | 671-810 | 604-627 |
| Excellent | 961-999 | 811-1000 | 628-710 |
Conclusion
It may seem intimidating at first when finding out about credit scores and how to actually get your mortgage, and certainly, it is not something that we want to spend too much of our lives worrying about. This is why at Your Mortgage Group we have been helping people throughout Sussex for over 15 years to realise their dream of buying their first home.
Contact us here for a free consultation to get a firmer understanding of your credit score and what you can expect from your mortgage.
