Will a low credit score affect my chances of getting a mortgage?
People worry that it can be difficult enough getting a mortgage deal with a reasonable credit score – but what do you do if you don’t even have that? If you’re in that position and you’re asking yourself, “How do I get a mortgage when I have no (or a low) credit score?”, then you’ve come to the right place. We’ve gathered together here all the information you need to help you to achieve your dream of homeownership.
- I’ve never had credit before. Is this a good thing?
- How this all effects you?
- A word of warning
- What next?
- Take care of the basics
- Make good any problems
- Start building a good credit history
- How can we help you?
As straightforward as this process is, it is likely you will still need some more in-depth advice into each area, so read on for more information.
Low credit score topics
Can I get a mortgage with no credit rating?
This might seem counterintuitive to most, but it is an unfortunate and uncomfortable truth. You could be forgiven for thinking that if you haven’t had credit before – or if you’ve made very little use of credit, and paid it off as per the arrangement – then you should be in a strong position when it comes to applying for a mortgage. You have no black marks, nobody chasing you for payments and no financial skeletons in your closet. The bad news is that you are potentially in no better a position than if you had a chequered credit history. In fact, you may even be worse off.
The reason for this is that lenders look for a pattern of behaviour in your borrowing as part of the process of making a decision to grant a mortgage. If there is no record of behaviour to see a pattern in, then you are an unknown quantity. To you, saving for major purchases and buying when you have the money seems like a sensible approach to financial management, but to a mortgage lender it would appear that you have been completely off-grid and may as well be a stranger coming out of the shadows. They are likely to see you as a risk, because they have no evidence that you can manage your finances well.
We know that this will seem unfair, but you need to know where you stand – if you have very little credit history, or no credit rating, then it can be very difficult to get a mortgage. This said, there may be ways to enhance your image in the eyes of lenders through a detailed look into your income, affordability, existing equity and also providing a large deposit.
There are also several steps you can take to create and nurture a healthy credit history, which will stand you in good stead in future when you come to apply for a mortgage – we’ll look into these further down this page.
We’ve already mentioned that you could be seen as a higher risk if you have no or a low credit score. Let’s consider the potential impact of that on any mortgage applications you might make.
- The lender says ‘No’ – they just turn you down flat.
- The lender asks for a bigger deposit – they’re not prepared to offer you as much as you want to borrow, but they do make an offer, leaving you with the problem of coming up with the additional money.
- The lender charges higher fees – limited choice could result in you having to pay more to the lender that is happy to assist.
- The lender charges a higher rate of interest – they do this to reflect the perceived increased risk of lending money to you.
All of this can be dispiriting. It can feel like you are being unfairly punished, sometimes for no reason other than that you are just starting out and have yet to prove yourself.
Sometimes you just have to take their decision on the chin, either because you can’t at the moment raise a bigger deposit or because you have to wait for something to drop off your credit report. (Things typically stay on there for six years.)
Other things you can do something about, and we’re going to take a look at those things shortly.
If you’re trying your hardest to find a lender that will accept you for a mortgage, PLEASE resist the temptation to send as many applications as you can to a range of lenders in the hope that one or two of them will accept you. Mortgage hunting when you have a low credit rating is NOT a numbers game, and contacting multiple lenders at the same time will only cause further harm to your morale and credit score, for two reasons:
- Your only options for lenders to approach will be those you find on the high street or online. These mainstream lenders will always be the most cautious and least flexible when it comes to granting a mortgage, and the chances of refusal are high if you have a low credit score, or no credit history at all.
- Your approaches to multiple mainstream lenders (especially without expert guidance to make your application with a low credit score as strong as possible) is likely to result in multiple rejections. Being turned down for a loan or mortgage also shows up on your credit history, raising further red flags, and so a string of failed applications will only damage your credit score even more.
It is far better to be selective and targeted in your application for a mortgage when you have a low credit rating. Worried that you might have done something to harm your credit score? One of our experienced advisers will be happy to talk it over with you and propose a course of action to remedy the situation.
Whether your bad credit score is caused by adverse events in your credit history, or no history of borrowing to speak of at all, the effects will be the same. Fortunately, there are a number of measures you can take to remedy the situation, show that you have a reasonable credit record and improve your score. Each will take a little work and you must allow time for the effects to show, but it’ll be worth it to be able to access the best possible terms on your mortgage.
Step 1: Take care of the basics
These are very straightforward things you can do that should not take long or be overly stressful. They establish that you are an accountable, responsible member of society and can be seen as simply good housekeeping. If you’ve experienced bad credit events in the past, it’s worth looking into these every year or two, just to make sure everything is as it should be:
- Register on the electoral roll
This may seem a little obvious, but it’s surprising how many people are not registered at their current address, or may have moved house without thinking about changing the records. Getting on the electoral register provides a valuable form of I.D. verification, shows you are accountable and is a useful measure against fraud.
- Close any unused credit accounts
If you have store cards or credit card accounts that are lying dormant, perhaps kept open ‘just in case’, then it’s a good idea to close them and make your finances as tidy and straightforward as possible. Credit agencies looking at your records may interpret unused open lines of credit as a sign that you may be worried about your finances.
- Contact the three main UK credit agencies
Checking your own files is not the same as a lender making a check and will not affect your credit rating at all. The three main UK credit agencies, Experian, Equifax and TransUnion, all hold data on your credit history, and as they are independent of each other it may not be consistent. You’ll know where you stand with each and will be able to spot and correct errors.
- Correct inaccurate entries
It’s vital that lenders see accurate information about you when they make a credit check. Make sure all data the agencies hold on your balances, accounts, dates, etc, is correct and up-to-date and, if not, immediately write to any agency holding erroneous information and ask for it to be corrected – you may need to supply supporting evidence. You might need to allow a few weeks for changes to be made before requesting new copies of reports to make sure it’s all gone through.
Step 2: Make good any credit issues
Once you’ve checked that all records pertaining to your credit history are correct, and amended any errors, you will now have a file that accurately reflects your current credit situation. Anything showing a healthy approach to borrowing, with consistent, timely repayments will cast you in a good light, but any blemishes and adverse credit events will affect your credit rating, and will need to be taken care of.
Not all bad credit items can be resolved simply (for example, you may have to work through a period after bankruptcy), but there are two key steps you can take to immediately tidy up your credit rating and improve your overall credit score. The more time has passed since they occurred, the less impact they will have on your credit score, but it’s definitely worth getting any issues from the last six years out of the way.
- Settle outstanding debts
If you have any debts or balances that have been left hanging for a while, pay them off or try to pay them down if possible. This will lessen your number of financial commitments and help improve your credit score. If you have any defaults or CCJs against your name, these will slip off your record after six years, but you will be a better prospect for a lender if you have taken steps to settle debts rather than leave them, and move closer to a clean slate.
- Make sure payments are up to date
While you’re looking at clearing the decks on your debts, check to make sure that any repayments are not overdue on any current borrowing. Remember, paying your bills and instalments on loans in a timely manner will count favourably on your credit record. If you consistently wait until the red bill arrives, this bad habit could unintentionally wreck your credit rating.
Step 3: Start building a good credit history
With your credit data and current borrowing arrangements all up to date and as tidy as possible, you are now ready to take further proactive steps to improve your credit rating. There are a couple of measures you can take to ensure your current financial activity shows you to be a responsible borrower – able to handle accounts, with a healthy attitude to credit – and are especially effective for people with little or no credit history.
- Take out a credit card
This may seem counterintuitive at first, but one simple way to show you can borrow responsibly is to open up a line of credit, use it sensibly and pay off the balance in full and on time at the end of every month. You should not expose yourself to risk of heavy debt, and never allow credit to build up on the account, but use the card for your usual daily or weekly purchases instead of cash or a debit card. Paying it off as and when you should will create a record of regular payments and build up a clean credit file.
- Open a savings account
As well as opening a new line of credit to pay off consistently, you can also start a savings account and pay into it on a regular basis to show you are able to live within your means and put money aside for contingencies, a deposit or a future large purchase. Even just putting in a little each month will stand in your favour on your credit record.
If you do nothing else, you must keep track of all your credit accounts and pay off balances when they are due. Any late or missed payments will appear on your credit report and remain on file for six years. One simple way to ensure payments are made on time is to set up direct debits from your bank account – this will prevent any stress over remembering when payments are due, but you’ll need to make sure there is enough money in your account to cover them.
If you stay on top of things now, you will avoid lapsing into a difficult financial position again in future. By building a good credit history, you will improve your credit rating and also your chances of successfully obtaining a mortgage.
In order to prove you will handle your accounts responsibly, you have to have some accounts to handle. That means you need to access some form of credit. If you have a mobile phone on a monthly contract, then that’s a start and it should help – but not as much as having a loan from a major bank, for example.
Most mortgage lender’s run a credit scoring system, so if you have a low credit score that can make it difficult to meet the minimum credit score for each individual lender. Thankfully there are mortgage lender’s who do not credit score but ‘credit search’, meaning the lender will search your credit report as a whole to check that each account conduct meets their criteria not just focusing on the score.
Trying to find and successfully apply for a mortgage when you have a low credit score can be a long and often frustrating journey, frequently hampered by the narrow criteria imposed by most mainstream high street lenders. The search can seem like continually coming up with dead end after dead end, with no other options in sight. This is because the most suitable mortgage lender for your situation – one that will perhaps give your application the attention it deserves – is likely to be one of the many specialist lenders that you will not find on the high street, and will not be able to contact yourself.
If you’re struggling to get a mortgage because you have no or a low credit score, or you’re just not sure what to do next, then get in touch, because we can help. Specialist mortgage lenders only accept applications made through trusted professional intermediaries such as ourselves at Just Mortgage Brokers – after going over your exact circumstances, we can identify which lender would have the most suitable product to meet your needs, and then help you with your application so that it stands the greatest chance of success.
With access to over 90 lenders across the UK mortgage market, our specialist team of mortgage brokers are able to access a wide range of products and deals that you will not be able to find yourself. We also have a huge amount of experience of working with people with a low or no credit score, and have assisted hundreds of borrowers in your position to obtain a mortgage and finally purchase their own home. We will understand exactly the issues you are facing, and how to resolve them. Contact us now for free, no-obligation initial help and advice, and we’ll be able to get you on the path to home ownership.
– What is a good credit score?
If you have a “good” credit score, it generally means that you have maintained any current and previous credit agreements. Each credit reference agency scores you differently – some score out of 1000, 700 or 600, while others grade you out of 5. The higher the credit score the higher the chance of being accepted for a mortgage or a form of credit. Do note, however, that the score generated by a credit reference agency is simply a guide to your chances of being approved by a lender. Each will make their own assessment based on their criteria.
– What is a bad credit score?
A “bad” credit score is an indicator that someone has experienced difficulties with current or historical credit agreements. The worse the credit score the lower the chance of being accepted for a mortgage or a form of credit.
– How can I improve my credit score?
Your credit score can take time to improve, and everything remains on your record for six years. Fixing or improving your credit can involve a number of things such as keeping debts to a minimum, making all payments on time and not taking out short-term credit such as payday loans that can have a detrimental impact on your credit rating. Being on the electoral register can also help improve your credit score. Take a look at our full guide in how to improve your credit score.
– How do I check my credit score?
You can check your credit score by accessing your file with the relevant credit reference agency. Some agencies may make a charge for this service. Do note that lenders will apply their own scoring system that cannot be checked unless an agreement in principle is submitted.
– What is a credit score?
A credit score is a grading of your creditworthiness that lenders use as an impartial tool to decide if they are happy to lend to you. Credit reference agencies will give you a score based on their own method that can be used to assess your ability to repay a loan. All lenders will adopt their own criteria and methods of assessing your credit score – however, your chances of being approved can be indicated by obtaining your score as given by a credit reference agency. Please note, however, these are only to be used as a guide and are not a guarantee of your acceptance.
– How do I get a good credit score?
You can get a good credit score simply by maintaining monthly payments on credit agreements and having a manageable amount of debt in relation to your income. Also ensure where possible that you are registered on the electoral register, as that can have a positive impact.
– How is a credit score used by mortgage lenders?
Many lenders use a computerised scoring system when assessing an applicant for a mortgage or loan. This will take your overall situation into consideration. Some lenders, however, prefer to simply make a credit check that applies a more manual approach to the assessment.
– What is the best credit score site?
Lenders use different credit reference agencies when obtaining the information they require to assess an application. Many agencies exist but three most common in use by lenders are Experian; Equifax and TransUnion (formerly Callcredit).
– How long does it take to improve a credit score?
There is no set time for how long it takes to improve a credit score. Numerous factors are taken into consideration when assessing your score, but ensuring payments are made on time and trying not to over indebt yourself can help. The more historical any adverse credit entries are on your file could also assist with any entries being removed after six years.
– Can I get a mortgage with a bad credit score?
Lenders will consider approving loans to those with a bad credit score; however, the more severe the credit issues, the greater chance you will need to apply through a specialist provider. Not all applicants will be approved, and due to the specialist nature of this type of lending, it is perhaps advisable to seek assistance from a bad credit broker.
– What is adverse credit history?
Adverse credit is a term used to describe negative events in regard to credit agreements. This could involve many things including but not limited to missed payments, defaults, CCJs, bankruptcy and IVAs. Adverse credit history and low credit scores can also result from high utilisation of credit even if payments have been kept up to date.
– How is a credit score calculated?
Numerous factors are used to calculate your credit score such as the amount of debt or credit you have, your payment history and even if you are registered on the electoral register. Each credit reference agency scores you differently, and each lender will also adopt its own method of calculating your credit score.
– Does a joint bank account affect credit score?
Taking out joint credit such as a bank current account means a financial association may be created which can in turn potentially affect your credit score. Each party to the account can therefore have an impact on the other party’s credit assessment depending on the conduct of the actual account or any other credit agreement they may hold.
– Does a joint account affect credit rating?
Taking out joint credit such as a bank current account means a financial association may be created which can in turn potentially affect your credit rating. Each party to the account can therefore have an impact on the other party’s credit assessment depending on the conduct of the actual account or any other credit agreement they may hold.
– Does ‘buy now pay later’ affect credit score?
A ‘buy now pay later’ agreement is still a form of credit that simply permits the deferment of the payments, or the full amount to be repaid typically without interest being charged, at a set date in the future. This will therefore usually appear on your credit file and will likely have an impact on your credit score. This could of course be a positive factor depending on the conduct of the account and your overall indebtedness.
– Can I get a mortgage with no credit history?
Many lenders will carry out a credit search when you apply for a mortgage, checking your current and previous credit history, as this can be a good indicator of your ability to service the loan applied for. A lack of credit history could have an influence but solely would not necessarily stop a mortgage being approved.
– How does credit history work?
Credit history is, but not limited to, a six-year period in your personal credit file that will detail any of your financial commitments during this period.
– What credit history is needed for a mortgage?
Credit history is typically assessed for a mortgage from the preceding six years at the time of application. Do note, however, that when applying for a mortgage or other forms of credit, certain events such as a bankruptcy may still be taken into consideration by some lenders regardless of the timeframe.