Applying for a mortgage is an incredibly exciting time, but it’s also a huge financial commitment, and not something that should be taken lightly.
Lenders certainly don’t take mortgages lightly either, and they want to be certain that they’re lending money in a responsible way, to people who are in the right position to pay off their loan.
That’s where credit scores come in. These are used by lenders to assess your financial position, and are a significant factor in whether they make a mortgage offer, and what the terms may be if they do.
If you’re planning on applying for a mortgage in the next year or two, it’s certainly a good idea to reflect on how you could improve your credit score. If you’re not sure where to start, read on and we’ll explain all.
How do credit scores work?
A credit score is a three digit number that ‘rates’ your previous credit history and borrowing behaviour, using all the data available to credit reference agencies (CRAs).
In the UK, the three main CRAs are:
These organisations are sent and compile information about you – your personal details, information about your residence and your finances, particularly in regards to any credit you have. That ‘credit’ could come in many forms – personal loans, mobile phone contracts, overdrafts, utility bills, car finance and more.
They take all this information and use it to score you. This is then viewed by lenders to determine how much of a risk you are – everything from credit card companies and landlords, to mobile phone providers will factor your credit score into what they’re able to offer you.
Can I find out my credit score?
Yes. By law, all CRAs have to offer you the opportunity to view your credit score, via a free report at your request. You can access this online in a few minutes, and as they may have different information to hand, it’s a good idea to investigate where you stand with each of the three CRAs.
How fast can you raise your credit score?
Improving your credit score is not an exact science. There are a few things you can do in the short-term that should give it a small, but noticeable boost. But generally, for a marked improvement in your rating, you’ll need to take months and as much as a couple of years working at it. If you have lots of ‘bad’ debts, you may not start to see much improvement until these are paid off, which could take even longer.
What credit score do you need for a mortgage?
That depends. Lenders have got choosier about who they lend to in recent years, and if you have a bad credit score, you will struggle to find a mortgage. That’s not to say it’s impossible, you may just have to shop around a lot. Any mortgage you are offered may not have terms that work for you, and you might find that what you’re offered is more restrictive than you’d like.
It’s important to note that having bad credit history is not the same as having no credit history. Lenders will be very wary about offering a mortgage to someone for whom there’s little information to go off, but if you’re in this position, you just need to take a few months or years to work on improving your credit score. As long as you’re responsible, you should be able to build on your score and get it to a good place fairly soon.
If you are struggling with a low credit score, some lenders offer specialised mortgage packages for your situation. You’re unlikely to get the best rates, but it’s still an option if you don’t feel you can improve your rating anytime soon.
Top ways to improve your credit score
Whether you’ve got bad credit, little history, or want to build on an already-good rating, all of these steps can help increase your credit score.
Note: The total amount of debt you have may not be factored into your credit score, but it will be looked at by lenders to see whether it’s feasible for you to build their payments into your budget. If you already have too much other debt to be focusing on, they may see you as too much of a risk.
How can I raise my credit score in 30 days?
If you’re wondering how to improve your credit score fast, there are a few things you can do. But while they will make a small difference, you shouldn’t expect to transform your credit score in just a month. In the short term, the best options from the above would be joining the open register, consolidating all your details at one property, and applying for a credit card – but only if it looks highly likely you’ll be eligible for one.
With sensible use of credit and by keeping all your details up to date, there’s no reason why your score won’t improve over time. If you’ve managed to secure your mortgage agreement in principle, you’ll also want to appoint a conveyancer while you continue your property search. They take care of all the legal aspects of your property purchase, and you’ll want them ready to help as soon as you make an offer. For more advice on the process that lies ahead, take a look at our first time buyers guide. Or to see how we could help, get a quote from My Home Move Conveyancing today >
Disclaimer: This article is for informal and general advice only. For full and proper financial advice around your circumstances, please see the advice of an independent advisor.