Your credit score is one of the most important factors when it comes to getting a mortgage as a first-time buyer or previous homeowner in the UK. A high credit score will help you get a lower interest rate, which will help save you money in the long run. In this guide, we’ll discuss ways to build credit score for a mortgage. We’ll cover everything from paying your bills on time to using a credit card wisely. Follow our tips and you’ll be on your way to a higher credit score and a better mortgage deal.

What Credit Score Do I Need for a Mortgage?

There is no minimum credit score required for a mortgage, as each lender has their own criteria. However, it’s unlikely that your mortgage application will be accepted if you have a poor credit score. Credit reference agencies can give you an idea of where your credit score stands, even though lenders won't use this information directly in their decision-making process.

While you're in the DIP stage of securing a mortgage, lenders will create your credit score. They’ll look into your credit report to get a detailed look into your credit history and factors such as outstanding balances on credit cards, voting registration status, and past missed payments. This information is used to generate a credit score that’s unique to the lender.

To make yourself more appealing to the lender, work on being reliable, stable and financially secure. This shows you're trustworthy with repayments.

How Do Lenders Assess Your Eligibility?

Though all lenders have their own methods, they examine similar key factors to assist in their decision-making process.

  • The information on your credit report, from your credit history to public record data (including CCJs and IVAs)
  • The information in your application form
  • The information that they already have on you, such as if you have an account with them
  • Their lending policy. These vary from one lender to another

These factors will be taken into consideration before a decision is made by the lender.

How Will My Credit Score Affect My Mortgage Application?

Your credit score can affect how much you pay for your mortgage. A bad credit score could mean higher interest rates or even rejection of your application. Generally, the higher your credit score, the better deal you’ll be able to get on your mortgage. This could potentially save you thousands of pounds over the life of your loan. However, if your credit score isn't quite where you'd like it to be, don't worry. There are several steps you can take to improve it and make yourself more attractive to lenders. Simply learn how to build a credit score and get the best deal on a mortgage.

How Can I Improve My Credit Score for a Mortgage?

There are some key steps you can take to build good credit score.

Pay Your Bills on Time

If you're wondering how to build your credit score, the key step is to pay your bills on time when they're due. Lenders always look at how responsible you are with making punctual payments when calculating your credit score. If you don't pay what you owe in a timely fashion, it can affect your rating. To make sure that doesn't happen, consider setting up automatic payments so payments are processed right away.

If there's a problem with making payments on time, don't hesitate to talk to potential creditors about solutions that’ll allow you to keep up with your financial obligations without damaging your credit score. You can also talk to your utility providers about payment plans if needed.

Pay Off Credit Card Debt and Overdrafts

Paying off credit card debt and overdrafts is one of the most important things you can do to improve your credit score. These products have high interest rates, so it's best to pay them off as quickly as possible to avoid more debt. Do your best to reduce what you owe as the more debt you eliminate, the faster your credit score will rise. Paying off debt reduces how much credit you’re using, which can improve a weak credit score. Of course, this isn’t to say that all debt should be avoided. Taking out a loan to fund an important purchase if you didn’t have the funds to begin with can actually help boost your score when paid back in a timely manner. But, paying off credit cards completely is always a better financial decision than sinking deeper into debt with each passing month.

Don’t think that credit cards are bad for your score in themselves. Having a credit card that you regularly use and consistently pay off on time – e.g. via a direct debit – can actually help improve your credit score.

There are plenty of strategies for successfully tackling credit card debts, including establishing a budget, tracking spending carefully, avoiding new purchases until outstanding balances are paid in full, building an emergency fund to keep future debts at bay and seeking assistance from friends or family if needed.

Keep Your Credit Utilisation Low

This is the ratio of how much you owe compared to how much available credit you have, and it usually depends on how many credit cards you have and the limits on those cards. It's a good idea to try and keep your utilisation rate as low as you realistically can.

Keeping your credit utilisation low helps build a stable record that lenders look favourably upon. It also helps protect you from potential financial issues down the line.

Reduce Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the amount of debt you owe versus how much money you make. This figure gives lenders an idea of your overall financial stability and responsibility. Generally, it's best to keep this number as low as possible by reducing the amount of debt you owe. Not only is this important for your credit score, but mortgage lenders often look for a DTI ratio closely to assess how much you can safely afford to borrow each month. A low DTI may be able to help you secure a loan that’s closer in value to your maximum borrowing, meaning you could be more likely to get the home of your dreams.

Dispute Any Errors

It’s not uncommon to find errors in your credit report, so it's important to go through it carefully and dispute any inaccuracies that you spot. This could include anything from payments inaccurately marked as late or even mistakes from previous creditors. If you do see errors, contact the relevant credit reporting agency to dispute them and have them corrected. This will help ensure your score is reported accurately. Small errors can have a big impact on your credit score, so it's worth the effort to get them sorted out.

Register to Vote

This is one of the best ways to build credit score. It's quick and easy and can have a positive impact on your credit score. This is because having your name on the electoral roll helps lenders verify who you are and where you live. It also shows that you’re financially responsible and committed to staying in one place, which is something many lenders look for when assessing an applicant's worthiness. So make sure to register on if you haven’t already and boost your credit score in the process.

Review Your Credit Report Regularly

An important tip for boosting your credit score is to keep an eye on it. Review your credit report regularly, either through Experian or Equifax’s, etc. free credit report services. This will help you spot any issues or errors that could be reducing your score and give you the opportunity to address them quickly. It's also a great way to ensure your personal information is up-to-date and accurate, as lenders base their decisions on this data.

Avoid Financial Linking with Family and Friends

It's important to be aware of the implications that financial linking can have on your credit score. This includes anything from joint accounts with family members or friends, to having your names on the same utility bills. It can harm your score if they have a history of poor financial management or have defaulted on loans in the past. To protect your credit score, it's important to be mindful when considering such arrangements and make sure you understand the implications before going ahead.

Use Eligibility Checkers

If you need to apply for a loan or credit card and want to know your chances of being accepted, you can use an eligibility checker before applying. This will allow you to enter some basic details – such as income and current debts – and see which options are available without impacting your score. It’s a great way to make sure you know your options and can plan ahead before making any applications. This can prevent rejection and avoid you making too many applications within a short period of time, which can have a negative impact on your score.

Monitor Fraudulent Activity

It’s important to watch for any suspicious activity in your credit report. If you spot any fraudulent activity or signs of identity theft, contact the relevant credit reporting agencies as soon as possible so they can investigate and take action. This will help protect your score and ensure all negative information is removed from your report.

How Long Does It Take to Improve Your Credit Score?

The amount of time it takes to see an improvement in your credit score depends on a number of factors, so don't expect results overnight. It can take weeks for information about new accounts or changes to show up on your credit report. Also, keep in mind that newly opened lines of credit may need weeks or even months to mature before they start to impact your score positively.

Consistent and timely payments will improve your credit score as you establish a history. Missed payments, defaults, and court judgments will remain on your credit report for 6 years. However, their effect should lessen with age. After the 6th year has passed, they will be deleted from your report entirely.

I Need a Mortgage Now Despite a Low Credit Score

If you’re looking for a mortgage with a low credit score, there are some steps you can take to improve your chances.

  • Make Sure You’ve Got a Steady Job and Can Prove Your Income
    Lenders want to know that you can pay back what you borrow, and a steady income is the best way to demonstrate this.
  • Have a Good Deposit Saved Up
    large deposit shows that you’re serious about buying a property and is an indication of your trustworthiness. It can also reduce the amount of money you need to borrow, which will make it easier to get approved.
  • Avoid High Street Lenders
    High street banks have very strict lending criteria and are likely to reject applicants with a low credit score. Consider looking for mortgage products from more specialist lenders instead.
  • Shop Around for the Best Deals
    The mortgage market is competitive, so it pays to shop around for the best rates and terms. Going through an independent, specialist mortgage broker such as John Charcol gives you access to all the available deals, so you can find a mortgage tailored to your individual circumstances. It’ll improve your chances of getting approved and help you secure the best deal for your circumstances.

Ready to Apply for a Mortgage?

We understand that it isn't always easy to build and maintain a good credit score, but with the right advice and help from experienced professionals, you can find a mortgage product that suits your individual needs. Get in touch with John Charcol today on 0330 433 2927 to learn more about finding the perfect mortgage for you. You can also compare first-time buyer mortgage rates currently on the market with our best buys tool.

We look forward to helping you on your journey to homeownership.

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