Getting your credit score ready for a mortgage

Karina Hutchins

Head of Home by OpenMoney

July 20, 2021

Getting credit ready

Buying a home requires proper financial preparation. It’s not just about how much you can afford or what type of mortgage you’ll need – getting ready requires much more than that.

For many people, a mortgage is the biggest form of loan they’ll ever get, and mortgage lenders want to know that the debt will be paid back. A strong credit score goes a long way to prove to the lender that you’re in a good position to meet your mortgage payments.

What is a credit score?

A credit score is a number that shows how good a person is at borrowing and repaying money (credit). The higher the score, the better you look to potential lenders. A credit score is based on credit history, which includes number of open accounts, debt, repayment history, and other factors.

How does your credit history affect your mortgage?

Lenders use credit scores to see how reliable you’ve been at paying loans and debts back in the past. When you apply for a mortgage you will have to supply payslips, and bank statements to show how much you earn. This gives a good indication if you’re able to pay back loans on time, if you’ve gone into your overdraft, how much you spend on credit, as well as any other spending habits  . With this information and your credit report, lenders can predict how likely you’ll be able to repay a loan back in the future.

Your credit history can also affect your mortgage interest rate. Special introductory rates or other attractive mortgage offers might only be available to people with a good credit history.

What credit score is needed for a mortgage?

There is no magic number, since credit scores can change depending on who’s calculating them. We recommend finding out your score and finding out if its low enough to be concerned and go from there.

Can you get a mortgage with no credit history?

Yes, but it will be trickier. If lenders don’t have any credit information to go on, they don’t know whether you are a responsible borrower who will pay back the money you’ve been given. If you do find a lender willing to offer you a mortgage, it might not be the type you’d prefer and the interest rate might be higher meaning you’ll have to pay back more in the long run.

If you are worried that your lack of credit history might affect the success of your application, you might want to take some time to build a history before applying. You can speak to a member of our team for advice or read some of the examples below on how to build a good credit history.

Can you get a mortgage with credit card debt?

It depends on how big the debt is, and how well you have kept up repayments. A small amount of debt that you make regular payments on could be fine if you earn enough to cover both credit card and mortgage payments. On the other hand, if you haven’t kept up with credit card payments or you have debts on several cards, lenders might decide you are too much of a risk.

How can I improve my credit score?

If you’re thinking of a buying a home and want to improve your chances of being approved by a lender, you’ll want to make sure your borrowing history is in good shape. Here are some different ways to get credit-ready before applying for a mortgage:

Register to vote

You need to be registered on the electoral register for lenders to confirm your address and help them trace your credit history. If you’re not registered, it will be difficult – and possibly unlikely – that the lender will have enough information to progress your application.

Be selective about your credit applications

When you make an application for credit, it shows in your credit report as a ‘credit search’. If you make a lot of applications, it can reflect badly on your mortgage application, as it suggests to lenders that you are reliant on credit and unable to keep up with mortgage repayments.  

Review your credit history and score

Check your borrowing history in advance. If there is any information you think is incorrect, you can dispute it before it is sent onto lenders. You’ll also be able to view your current credit score. Remember though, scoring bands can vary between different credit reference agencies.

Reduce your debt-to-income ratio

This is the amount of debt that you have in relation to the money that you make. The higher this number is, the more debt you have. Lenders prefer applicants with a debt to income ratio   below 50%, as this means that you’re likely to have the funds to make your monthly mortgage repayments.

Cut out any unnecessary borrowing

Try not to borrow any unnecessary money at least six months before applying for a mortgage. Using Klarna to make purchases or taking out cars on finance are examples that could increase your debt-to-income ratio, which may reflect badly on your ability to repay any mortgage loans.    

Make sure to pay bills on time

Even if your credit history seems to be in a good place, don’t forget or ignore bills in the run-up to your application. Your borrowing records are ongoing, so any slip-ups before you apply for a mortgage would show the lender that you may not be able to meet your mortgage repayments.

Close any inactive joint accounts

Having inactive joint accounts that are still open could affect your ability to get a mortgage. For example, you might have had a joint account with former housemates for paying bills, or you might have separated from your partner. Their current and future borrowing habits could affect your mortgage application, so make sure that you’ve removed these links from your record.  

Check on joint applicants

If you’re making a joint application for a mortgage, you should know that lenders will check the credit history of all the people applying. It’s important check with the other person to make sure their credit history is also in a good place.

Lenders use a range of different factors to determine who receives a mortgage loan. There is no simple solution for a successful application. However, following the steps above will boost your chances of getting a mortgage, so that you can move into your future home.