How To Improve Your Credit Score For A Mortgage

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  • Mortgage interest rates have fallen so low that some banks and building societies are offering homeowners rates below 1%. But to get your hands on the cheapest mortgage deals, you need to be an attractive financial candidate. This means that you may need to improve your credit score.

    If you are thinking about buying a home and want the best mortgage rates, you will need an A-Star credit score to be considered. A credit score is a number that lets lenders know how well you are managing your personal finances, debts, and bills. Your score will be classified into one of the following five categories: poor, fair, good, very good, and excellent or exceptional.

    The major credit bureaus, Experian and Equifax, use different rating systems, so there is no magic number that indicates what a good or great credit score is. Equifax recently updated its rating range from 0-700 to 0-1,000. To get a great score you will need 811 or higher. Experian is in the process of changing its rating system. Currently, his score is 0 to 999. If you score between 961 and 999, you will be excellent.

    Having a bad or fair credit rating not only means that you will be offered a higher interest rate, but may also ask you to make a larger deposit. This is because the lender thinks you are at a higher risk of not paying your mortgage.

    How Can You Improve Your Credit Score?

    There are many ways to boost your credit score to get the best mortgage deals.

    Evaluate your current credit score

    Knowing your current score is a good place to start. Sign up with a credit reference agency to receive your report to see exactly what a mortgage lender sees. Some agencies offer a free trial so you can download your report and then cancel any future payments. Or you can subscribe to receive your report every month to see the impact of your improvements on your score.

    Along with knowing your credit score, you’ll see your address history, credit history, and any credit issues. Defaults, county court judgments (CCJs) and bankruptcies stay on your credit report for six years.

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    Image credit: Future PLC

    Register to vote

    Are you registered on the electoral roll? Otherwise, register on the website. When you register for the electoral register, this is recorded in your credit report which provides lenders with your name and address history and adds points to your score.

    Improve Your Credit Score With Reasonable Credit

    Not enough or too much credit? You might think that having no credit at all is a good thing. In fact, having no credit leads to a low credit score because there is no evidence that you are a quick and responsible repayment.

    Try using a credit card with a low spending limit to purchase your weekly grocery store or gasoline, then pay off the balance immediately. Or use an interest-free credit card to purchase your bedroom furniture and pay it off in full before the offer ends.

    Relying too heavily on credit is also damaging. Having one or two high loan balances that you pay off isn’t the end of the world. But having a lot of credit cards or overdrafts that are at or near their limit can cause your score to drop.

    Using less than 30% of a card’s limit can increase your Experian score by approximately 90 points.

    Pay bills on time

    Paying all of your bills on time is essential if you want to improve your credit score. If you’re a sloppy payer, your score will reflect that. And it’s not just the loans that need to be paid on time. It is also about utility bills such as energy, telephone and council tax. Don’t forget the buy-it-now agreements you have made.

    You may even receive a black mark on your credit report for non-payment of a parking fine. If you don’t pay on time you will lose points and if you end up receiving a default or CCJ your credit score will take an even bigger impact. The more recent your payment history, the more damaging it will be for your score.

    However, if you’ve had problems in the past, don’t panic. There’s no better time than now to clean up your credit report.

    Limit credit requests

    When you apply for a mortgage, loan, or credit card, the lender will perform a check of your credit which is recorded on your report. Several credit checks can lower your credit score because it means you have been turned down by other lenders. It looks like you are in desperate need of the money.

    However, not all credit checks appear on your report. Ask the lender if this is a soft or strict credit check. Bad checks are not visible to other lenders.

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    Image credit: Dominic Blackmore

    Beyond Your Credit Score

    Once your credit score is sorted out, you might think that an ultra-low mortgage rate is in the bag. Almost, but not quite.

    Mortgage lenders may also look at other aspects of your financial life, such as how you manage your bank account.

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    Image credit: Future PLC / David Merewether

    Stay in the dark

    Tell-tale signs of financial mismanagement include using your overdraft for non-urgent transactions such as socializing, going over your overdraft limit, and proof of bad withdrawals.

    Do not play

    Frequent gambling transactions, including bingo and online gambling, especially if you are overdrawn, will raise questions from your lender.

    Gambling does not mean that you will be turned down for a mortgage. But if the transactions add up to a consistently high amount each month, the bank will consider them a regular expense and this will reduce the amount you can borrow. And guess what, your winnings won’t count as winnings. Visit GamCare if you need help with the game.

    Decrease the debt

    Lenders are also on the lookout for your debt amount relative to your income level. If you have a high level of debt compared to your salary, you may not be offered the mortgage you need to buy the cushion of your dreams. Visit for more debt repayment advice.

    Look for a stable income

    Stable income and a good work history are also important. Newly independent borrowers have to wait about two years before being offered a low mortgage rate. Likewise, if you have started a new job, you will need to complete your trial period first.

    Save for a bigger deposit

    Finally, most lenders offer lower rates to homebuyers who can make a large down payment. If you apply for a 60% “loan-to-value” mortgage where you put down 40% of the price, you’ll have more options for cheap deals than on, say, a 90% LTV. mortgage.


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