Improve your credit score for a mortgage

Improve your credit score

If we’re being realistic, having a bad credit score usually means you can’t pick the first lender you come across and immediately apply for a no deposit mortgage. A poor credit score – or a credit report with defaults, CCJs, IVAs and bankruptcies listed – makes lenders think you’re a risky person to lend to, so they’re unlikely to immediately say yes to giving you a 100% mortgage and sending you off to choose your dream property. But, that doesn’t mean property ownership is out of reach.

There are a whole host of lenders out there that offer bad credit mortgages, you just need to make sure your credit score is good enough to be approved. At Everest Mortgages, we’ve helped a number of wannabe homeowners to secure mortgages and the first step is improving your credit score as much as possible.

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Why your credit score matters for a mortgage

Regardless of whether you’re applying for a fixed rate mortgage or a variable rate mortgage, your credit score will come into play. When lenders assess your mortgage application, your credit report gives them a picture of how reliable you are with money.

It shows your history of borrowing and repaying credit – such as loans, credit cards and bills – and gives lenders an insight into how risky you are as a borrower. A good credit score suggests to lenders that you manage credit well and will keep up with monthly mortgage payments, which makes you a lower risk. A bad credit suggests the opposite, which can lead to you:

Being offered higher interest rates, meaning your monthly payments are higher.
Having fewer lenders to choose from, and being limited to bad credit mortgages.
Needing to put down a larger deposit, which could put property ownership out of reach.
Undergoing stricter affordability checks, a time-consuming process.
Being approved for lower loan amounts, giving you fewer properties to choose from.

Luckily, bad credit doesn’t mean your mortgage hopes are automatically over, as there are a lot of bad credit mortgages for you to choose from. It just means you’ll need to plan a little more carefully, which Everest Mortgages can help you with.

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How to improve your credit score before buying a home

It doesn’t matter whether you’re a first time buyer, someone who’s investing in a second property or a homeowner keen to remortgage for a better rate, improving your credit score before you apply for a mortgage makes a big difference.

Check your credit report regularly

You need to know your credit report inside out before you start the mortgage application process. This will give you an insight into what lenders will see. It will also give you a chance to correct any errors or outdated information that could be holding your score back.

Register on the electoral roll

Being on the electoral roll at your current address helps lenders to confirm your identity and stability, so make sure you’re registered. If you’ve moved house in the last few years, check you updated the electoral roll. It’s a quick and easy way to give your credit score a bit of a boost.

Make all payments on time

It goes without saying, but you should be making payments on time. Your payment history is one of the biggest factors in determining your credit score, and not being able to pay on time sends warning signs to lenders. Set up direct debits for bills, credit cards and loans to avoid missed or late payments.

Keep credit card balances low

There’s nothing wrong with using a credit card once in a while, especially for big purchases, but try to keep your balance relatively low. High credit utilisation – meaning, if you’re using most of your available limit and only making the minimum payment – can negatively impact your credit score.

Avoid applying for too much credit

Each credit application leaves a footprint on your report, so don’t apply for credit unless you really need to. Too many applications in a short time can make lenders think you’re struggling financially.

Clear outstanding debts where possible

If you have any outstanding debts, try to clear them. Paying off existing debts – or, if that’s paying them off completely isn’t an option, paying off as much as you can realistically afford – shows lenders you can manage money well and you prioritise repaying debts.

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Bad credit doesn’t automatically mean mortgage disappointment

There are some downsides to applying for a mortgage with a bad credit score, but that doesn’t mean you’re going to be left disappointed and unable to buy. Having a poor credit score can limit your mortgage options, but understanding how it affects you can help you plan better.

If you apply for a mortgage with bad credit:

You’re likely to have fewer mortgage options, as not all lenders accept applicants with bad credit.
You might have higher mortgage rates because lenders see you as a bigger lending risk.
You might have strict borrowing limits, meaning you’re not able to borrow as much as you want, or as much as someone with a better credit score.
You might need to have a bigger deposit, as some lenders ask for higher deposits to offset the risk of lending to you.

At Everest Mortgages, we understand these challenges can be frustrating, but they’re not permanent. Everything you do to improve your credit score makes a difference, slowly but surely, and you’ll soon be on your way to property ownership. Who knows, you might already be eligible for a bad credit mortgage and we can guide you through the process.

FAQs

Frequently asked questions

How long does it take to improve my credit score?

Your credit card won’t improve overnight, but the sooner you start, the sooner you’ll see changes. Small improvements – like registering on the electoral roll or clearing small debts – can start showing within a few weeks, but bigger changes, like a default being removed or reducing your credit utilisation, can take longer.