09 Aug 2022
Understanding and Improving Your Credit Score
One of the biggest hurdles to getting approved for a mortgage is to have a good credit score. Having a good credit score shows that you are trustworthy and are able to pay back loans on time. This obviously looks good as a mortgage will likely be the biggest loan the majority of us take out in life.
So what is it and how can you improve it? It may take some time and patience but here are some tips, so you can understand how to start building up a better credit score today.
How Does a Credit Score Work?
A credit score is a numerical way to show how good (or bad) a person is at paying back the money they borrow.
When you undertake any form of borrowing money and making repayments, this will affect your credit score.
If you always pay your loans back on time, you will have a good credit score. But if you frequently make late payments or even fail to pay, this will negatively impact your score.
Can You Get A Mortgage with Bad Credit?
It will be much more difficult, but there may still be options out there. Talk to an online mortgage advisor to see what options you have.
It could be a case of a different lender or different type of mortgage, but it could also mean taking time to work on your credit and paying off debts to get a better score. You may also need to pay a bigger deposit, higher interest and have a good current income.
How Do You Check Your Credit Score?
There are a number of websites that you can use to check your credit score, with Experian being the UK’s largest.
Some of these websites may use different scoring systems but other websites like Money Supermarket may share the Experian credit rating system as it’s the most popular. Even if there are slight variations, it all gives you the same information, so any differences are not really important.
What Each Score Bracket Means
Using the Experian Credit Score that runs from 0-999, here is a guide to what each bracket could mean for you…
Excellent 999 - 961
This should mean you’re likely to be eligible for the best mortgage deals and lower interest rates.
Good 960 - 881
You won’t get the very best mortgage deals, but you’ll be eligible for most others.
Fair 880 – 721
There’s still a chance to get good mortgage deals, and they should have reasonable interest rates.
Poor 720 – 561
The chance to get a mortgage deal is less likely, but if you do, they will probably have higher interest rates.
Very Poor 560 – 0
Your mortgage application may be declined. You may be able to find a mortgage, but it will likely have a very high interest rate.
Keep An Eye on Your Score
You can sign up to be notified when your credit score changes via email, it’s good to regularly check it if you’re worried. If the score has changed and you are not sure why, you can check your credit report.
What is a Credit Report?
Whilst a credit score is summed up with a number and bracket (as above), a credit report is a lot more detailed and contains your personal history of credit accounts and enquiries.
When you apply for credit, the lender will check your report. These checks will leave a mark on your credit history, so you’ll want to avoid applying for too much credit in a short space of time, as well as applying for credit any time near making a mortgage application.
Checking your own credit report doesn’t affect it though, and you can do so here.
Ways You Can Improve Your Score
There are a few ways to improve your score or maintain an already good one.
Here are some suggestions below:
Register to Vote
If you haven’t done so already, doing this can give an instant yet small boost to your score. It might sound trivial but being on the electoral register is how lender’s can confirm your identity and where you currently live.
As a side note, it also looks better to mortgage lenders if you’ve lived at your current address for a while, rather than constantly being on the move, as it shows stability.
Use Money and Credit Wisely
How you use money and credit is the biggest factor in your credit score. Make sure you only borrow what you can afford, you can use a credit card but keep within your limits and set up direct debits so you don’t miss payments and lower your score. Make credit payments on time.
Pay off any outstanding debts, including County Court Judgements (CCJ) and avoid things like payday loans and pay later schemes like Klarna. Negative information like defaults (an account being closed due to missed payments) stay on credit reports for at least 6 years.
Keep in mind, if you are linked with anyone financially this can also affect your credit score, as their history will impact yours. So break off any connections if you can.
Help and Advice
If you’re wondering what type of mortgage you can get at your current circumstances, don’t hesitate to contact us. You can speak to a member of our team by calling 03300 58 60 58 or emailing us at ask@mortgages.online.
You can also start right away with our online form (you won’t be credit searched throughout this process).
