What Credit Score Is Considered Good?
When the borrowers apply for the mortgage, the providers prefer to look at their financial history, particularly the repayment to earlier loans. They do this to judge how much risk is involved in funding these people. Or, it also means they can borrow how much sum on a mortgage?
Thus, the better the credit score, borrowers have more chances of guaranteed approval plus the mortgage interest rates. A good credit score allows an individual to secure a mortgage.
There is no fixed credit score placed by the lenders to allow the mortgage to the borrowers. They use different credit reference agencies to know the credit score of individual borrowers. In the UK, the primary agencies are Equifax, Experian and TransUnion.
These agencies have diverse scoring scales. For instance, Experian considers a good credit score between the ranges of 721-880, Equifax puts individuals in this category that scores 380-419 and finally, TransUnion (Callcredit) gives scores between 566 and 603 in the good category.
How my credit score is calculated?
Even though credit scores matter a lot in mortgage approval, but still, they do not have an alone influence on the application. The ratings from the agencies are only the pointers to judge your trustworthiness.
Credit scores are the part of your overall credit report (it is the profile that carries detailed borrowing history of the past six years of a person) in which several factors are taken into consideration, such as:
- Previous loan applications
- Any CCJ (County Court Judgement)
- Any active debts
- Overdraft limit, if any
- Defaults, IVA (Individual Voluntary Arrangement), bankruptcy
- The Electoral Roll
What Credit Score Do You Need To Qualify For A Mortgage?
There is no specific credit score limit set by the lenders, but in general, any credit score that falls into the excellent category is ideal to qualify for the mortgage. However, people with having a bad credit rating are also eligible to avail the funding help.
It means if we take an example of Experian, then scores from 999 to 561 are accepted for a mortgage. The lenders and banks, who accept Equifax credit score, approve applications with scores above 279 while those consider Callcredit score provide a mortgage to those individuals, who score more than 561.
The borrowers’ credit score does matter in the guaranteed approval, but there are other factors as well that contribute a lot. These are:
- Your income (full-time, self-employment, pension and investment, rental income, overtime)
- Personal circumstances (retirement, divorce, illness, relocation, household)
- Pending debts and daily spending (credit card payments, loan agreement, family responsibilities, overdrafts)
How Much Impact Credit Score has on Mortgage Rates?
Your credit score has the direct impact on your eligibility for a mortgage rate. For instance, if your credit score is the nearly excellent rating, then qualifying for a mortgage becomes merely a formality. Most importantly, you can avail a reasonable mortgage rate such as 3.75% (an example) for the fixed-rate duration.
If your credit score falls into either fair or bad, then the rates automatically increase like 5%. The digit seems very little to see, but in reality, it proves very large for a more extended period. The better the credit score, the lower mortgage rates are there for the borrowers.
For more clarity, please take a look at the below table:
|How Credit Score Shape the Mortgage Interest Rates|
|Credit Ratings||Status of Interest Rates|
|Excellent||You have the best chance of availing mortgage on ideal rates.|
|Good||There is not much impact on the mortgage rates, as they are reasonable.|
|Fair||The rates get increased slightly than the best possible lowest prices.|
|Bad||There is an obvious chance of high-interest rate than usual.|
|Very Poor||Mortgage approval may be available but on very high-interest rates.|
*We have not mentioned the credit scores because different banks and lenders consider either of the three credit reference agencies.
You can see that your financial performance has the straight effect on your mortgage deal, particularly the interest rates.
What if my credit score is low? Can I get a mortgage?
A low credit score does bring a lot of limitations in availing a mortgage. But it does not become the reason for application rejected.
As mentioned above, a poor credit score invites high-interest rates or require a bigger deposit. Sometimes, it can be manageable, but many people find it very difficult to handle the obligations. Therefore, the mortgage advisors in the UK always suggest borrowers find ways where they can improve their credit scores.
A small guide to boosting your credit score
If you have the time to wait for buying a home, then it would be better if you do all the possible activities to improve your credit scores. Or, if your score is at the borderline, which means it can get better, then you can go for a mortgage, pay the monthly instalment on time and upgrade your rating.
Here are some tips to follow:
- Never delay all the pending balances for a longer duration. Pay them as soon as possible and get a good credit score before the mortgage
- Regularly analyse your credit report and point out all the measures where there is a possibility of improvement. Try to get free copy of your credit report from any of the three credit bureaus and fix the errors.
- Try not to do over check your credit score, as it leaves wrong footprints on to your credit profile.
- Reduce your credit card utilisation as low as it can be. It is one of the primary factors that can contribute to credit scores.
- Sometimes there is an error in the credit reports, and many people have been suffering from this. It will be best for you to recheck your report to ensure is there not any mistake from the agency end. If there is an error, point it out at the earliest.
Before seeking for the mortgage, you should know that a good credit score does not guarantee the approval, but it maintains significance. Besides, mortgage for bad credit people with good income are also available, and they will need more deposit from your pocket.
For the right guidance, you can have the professional advice of our mortgage experts. They will guide you thoroughly and help in getting the delay-free and hassle-free approval.
WHAT IS A GOOD CREDIT SCORE FOR A MORTGAGE UK FAQs
What is the lowest credit score to buy a house?
To be rational, there is no lowest credit score to buy a house as the lowest score also depends on the type of mortgage. For example – buy-to-let mortgages are higher in interest rates and demand at least a good credit score. If the applicant has a bad credit score, i.e. between 561 and 720 (Experian), the interest rates tend to go higher. However, this is applicable in the case of all types of mortgages. The lenders also focus on the repayment capacity of the applicant. Even bad credit score people get a mortgage with a good income. Shine Mortgages, the online broker deals in bad credit mortgages and brings affordable deals offered by the lenders in its panel.
Does a good credit score help in the mortgage?
Indeed, a good credit score always helps in getting a mortgage because it is the direct reflection of the financial behaviour of the applicant. The good rating means the person pays the bills and debts on time, and the lenders always prefer such fund seekers. They need the borrowers who can pay the mortgage instalments on time, and there will be no stress and mess on the part of repayments. However, it is essential to mention that with a good credit score, income should also be useful. After all, it should be sufficient to adjust the mortgage instalments.
How much can I borrow with a 700 credit score?
Borrowing limit not only depends on your credit score but many other factors. It is possible to get the desired amount despite the credit score of 700 if your repayment capacity is strong. For that income should be in promising numbers. Besides this, employment stability and length of credit history are the two critical aspects that come under consideration. Do not forget about the guarantor. It is always a dominating factor in the deal; some with stable finances can help you borrow a significant loan amount. In short, if all the elements are in your favour, you can borrow up to the maximum possible limit.