Understanding your credit score

Your credit score plays an important role in how lenders assess your eligibility for a loan. However, even with a poor credit score, getting a mortgage is still possible. This blog will explore ways to improve your score, explain how your credit score affects the amount lenders are willing to offer, and clarify what constitutes a good credit score.

What is a credit score?

A credit score, or credit rating, is a three-digit number that indicates your trustworthiness when borrowing and repaying money. The higher the number, the better your score, making you more likely to be approved for various forms of credit, such as mortgages, loans, or credit cards.

Factors influencing your score

Your credit score is a reflection of your financial history. It is calculated based on your credit report, which includes details such as your management of bank accounts, information from the electoral register, records of bankruptcies, and any credit you’ve held over the past six years.

How your score affects a mortgage application

The ideal credit score for a mortgage varies by lender. A low score doesn’t always indicate poor financial habits; it could simply be due to a lack of credit history. If you’ve never taken out a loan or repaid an overdraft, your score may appear low because you lack a record of reliable repayments.

If you’re concerned that your credit score might hinder your mortgage options, it’s advisable to start improving your credit as soon as possible to increase your chances of securing a favourable mortgage deal.

Getting a mortgage with a low credit score

While getting a mortgage with a low credit score is possible, you’ll need to demonstrate to lenders that you can manage your finances responsibly. This may mean your application takes longer to process compared to someone with a higher score.

Here are some steps that could improve your chances of getting approved for a mortgage with bad credit:

• Pay off outstanding debts
• Ensure all bills (rent, utilities, phone) are paid on time
• Close any unused credit lines and bank accounts
• Register on the electoral roll
• Review your credit report for errors or discrepancies

How to improve your credit score

If your credit score is low, or if you have no credit history, it’s wise to work on improving your score before applying for a mortgage. Here are a few ways to boost your credit:

• Register on the electoral roll
• Avoid payday loans and ‘pay-in-3’ services, as these can negatively impact your score
• Consider opening joint accounts if you live with a partner

How a mortgage adviser can help

Whether your credit score is high or low, there are still options for buying a home. Speaking with a mortgage broker can be beneficial, even if you’re in the early stages of your mortgage journey. While brokers can’t provide financial advice, they can guide you on the types of mortgages available based on your credit score. Contact us today to learn more about securing a mortgage.