Published 09 Nov 2020

What to know about Credit Scores when Buying your Home

When buying a home and applying for a mortgage, it's likely you'll need a 'high credit score' to be able to get a mortgage with the best rate. Our panel mortgage advisor, SRC Mortgage Solutions give us a breakdown of the facts around credit scoring and the importance of having 'good credit' when purchasing a home.

What is a credit score?

A credit score is a method used by lenders to access how they view your risk level when you ask to borrow credit.  If they lend you money to buy a house, they want to know that you’ll be able to pay it back. 

If you have had credit in the past and have managed it well, then the chances are you will have a good credit score. However,  if you had previous credit problems then it is possible that your score will be low. A low credit score in itself may not prevent you from getting a mortgage, but it may mean your lender choice is restricted and the products offered may not be best on the market.

What does a 'good credit score' look like?

Generally the higher the scoring number the better, although some lenders may take other factors in to account when assessing your application.  As an example, the credit reference agency Experian score people from between 0-999.  A good score from them is deemed to be anywhere between 881 and 960.

How is a credit score calculated?

A lender will consider multiple factors when assessing your application for a mortgage. Not only will they consider how you’ve managed credit in the past, they’ll also look at things like your residential history and employment history. 

If you have lived at many different addresses in the last few years, you may find this has a negative impact on your credit rating. Gaps in your residential history may also be a problem when calculating your credit score e.g. if you spent time overseas.  It is important to remember that not all lenders use the same method to assess a mortgage application, what may be unacceptable for one lender, may be okay for another. It's important you seek advice from reputable mortgage advisor to steer you in the right direction.

Ways to improve your credit score

There are many ways to improve your credit score but perhaps the first place to start is to obtain a credit report.  To do this you’ll generally need to register with one of the credit reference agencies such as Experian or Equifax.

Most agencies offer a free 30 day trial, so you should be able to obtain a credit report without any cost.  When you get your report we would recommend you check it carefully for errors. 

Simple things to boost your credit score include:

  • Registering on the electoral roll.
  • Keeping up repayments on any existing credit arrangements. Setting up a direct debit to pay at least the minimum monthly payment on a credit card will ensure that you never miss a payment.
  • Build up a credit score. You may consider not having any credit a good thing when it comes to getting a mortgage, but if you have never had any credit then there is no record to show how you have manged it.  Taking out a credit card or store card is therefore a good idea. Of course you must manage the account correctly and we would recommend you keep your spending low and repay the balance in full at the end of each month.
  • Avoid online gambling accounts.
  • Avoid pay day loans.    

It is a good idea to check your credit score before you apply for a mortgage this way you can identify any potential challenges before getting starting your buying process. When you're ready to take the first step and buy your first property, it is important you speak to one of our panel mortgage experts who will be on hand to guide you through every step.

Looking for a new home?

Are you a first time buyer looking to get on the property ladder? At Peabody, we have a number of new homes throughout London and the South East available through Shared Ownership, Help to Buy or Rent to Buy.

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