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Last updated on 22nd of January 2020

What Credit Score Do You Need to Buy a House In The UK?

Between mortgages, credit scores, deposits and more. Buying a house can be very stressful. Here are some things you need to know about buying a house in the UK.

Buying a house in the UK can be a stressful experience. Not only are you in search of your perfect home, but you have to be financially prepared to make the transaction. Your first step would be to find a deposit, and this can be anything from 5 to 25% of the value of the property. Once you have your deposit, you will need to find a way to borrow the rest of the money. For most in the UK, that means taking out a mortgage. Unfortunately, this isn’t always an easy thing to do. For a mortgage with a decent rate, you need to have a good credit score. This is where some potential homebuyers often stumble. So, what is a credit score and what do you need to ensure that you can get a good mortgage? Here are some of the answers to these questions with a few helpful tips on how you can build your credit score for a better mortgage deal.

What is a credit score?

A credit score is a number assigned to an individual to determine how creditworthy they are. The more creditworthy you are, the more you’ve proven that you’ve been able to take out credit and pay it back. The less creditworthy you are, the more likely it is that you’ve had bad debts in the past, not made financial commitments or taken out too much credit. The biggest trouble with a credit score is that there is no single number. Your credit score can be different between credit reference agencies and lenders. This can make it hard for you to understand why some lenders are willing to give you a mortgage and others aren’t. However, it is important to understand that each lender has their own specific credit criteria.

What credit score do you need to secure a mortgage?

There isn’t a specific score needed to secure a mortgage to buy a home. There are many factors to consider, and the same can be said with lenders. Your credit score can be completely different from one lender to the next, and their criteria for lending may also differ. Therefore, some lenders will offer you a mortgage while others won’t. The amount you are able to borrow to buy a house, including the mortgage rates can be significantly different as well. While it is good to shop around, this can also have a significant impact on your credit score and if you make too many applications, could lower it.

What can you do to improve credit score?

If you’re looking to build credit to buy a house, you need to start thinking about how to improve your credit score. This can include how you deal with household finances to taking out credit builder loans. Below are a few ways to improve your score in order to secure a mortgage.

1. Proof of address

Ensure that you are registered on the electoral role at your current address. Many councils will allow you to check your details online and make changes. However, if you’re not eligible to vote, and therefore cannot be on the electoral roll, you can send all three credit agencies proof of residence. This could be a utility bill, UK driving licence, etc. You should ask them to make a note to verify your residence.

2. Make regular payments to current credit

To become more creditworthy you need to show that you can use credit sensibly. This means that you should be making the required payments on time and in full each month. This shows lenders that you’re a responsible borrower. Having some old, well-managed credit accounts can improve your scores. However, be mindful of the negatives of having lots of old credit cards available to you. They might help improve your score, but they can also be a source of temptation. You should also remember that it isn’t just your credit cards or loans that can impact your credit score. Paying utility bills late can also negatively impact your credit score.

3. Reduce your credit utilisation

This is a problem that many people have, especially around the holidays. Credit utilisation is the percentage of how much credit you’re using compared to your credit limit. So, say you’re allowed £1,000 of credit through various credit cards and you have £500 of debt on those cards, your credit utilisation is 50%. The lower the percentage the more creditworthy you are seen to be. This is why old credit cards can be a helpful way to increase your credit score. The available credit on these cards counts towards your credit utilisation. So, say you have two old credit cards at £500 each and one current one at £1,000 and you have debts of £500, your credit utilisation is going to be reduced to 25%. You want to try to keep your credit utilisation as low as possible, preferably below 25% if you want to buy a house soon.

4. Build credit history

If you’re young or new to the UK, then you’re likely to have no credit history. Therefore, lenders can find it challenging to make a decision on whether they can lend to you or not. Therefore, you need to look at ways to build your credit history. This should include taking out credit builder loans, credit cards and other forms of credit and paying it back on time and effeciently. If you can prove that you can be trusted with credit, companies are going to trust you more and lend you more and at a better rate.

5. Be sure you’re not financially held back

Sometimes it is not your actions that are causing problems for your credit score. It doesn’t matter whether you’re married or not, with/without children. If you have a joint financial product with your significant other, then you are linked according to credit reference agencies. Therefore, if your partner has overspent or failed to pay back their credit, it negatively impacts you. It can also be a problem if you’ve separated and they’ve taken control of a financial product you’ve previously shared. If this is the case, ensure that you’ve unlinked your financial connection. If you are still together, even products that aren’t your responsibility could also have an impact on your score. For instance, if you have a joint bank account which has a healthy budget but your partner is over utilised on credit, this could negatively impact you. This co-scoring can be a significant hurdle to overcome and requires you to talk to your partner and ensure that you’re both on the same financial pathway.

6. Don’t keep on applying when you’ve been rejected

When you constantly for credit, even if you’re accepted but apply again because the rates are rubbish, it leaves an imprint on your file. Too many of these imprints on your file is bad for your record. It is a catch-22, you don’t want to apply once and accept the first rate that comes to you. However, if you too many applications you’re going to get rejected. Therefore, don’t apply too often and too close to each other. Be sure to spread out your applications. Too many, too close together can make it look like you are desperate for credit. Credit agencies will look unfavourably on this and could lower your credit score.

7. Check old products for the correct address

This might not be the first thought you had, but a wrong address on an old financial product can have a significant impact on your credit score. Therefore, if you have an old mobile phone contract, credit card or bank account; ensure that the right address is on these. Even if you aren’t using these, or you’ve not updated because you’re now paperless, then you need to get these changed. Of course, one problem is that you might not be able to get access to these accounts anymore. If so, you should immediately contact the company and try to recover your accounts.

8. Don’t take cash out on credit

Although it is tempting, you shouldn’t take any cash out from a credit card. It is more expensive, as interest payments are often higher, and you will be charged for the withdrawal even if you repay the amount back each month. Lenders also see this as a lack of money management skills. The only exception to this rule is when you have a special credit card for money abroad. Keep in mind that this is a special product.

9. Be sure to use consistent details across applications

Certain groups are going to be more readily accepted than others. For instance, renters are more likely to be rejected than homeowners. Likewise, those who are employed enjoy a better chance of credit than those who are self-employed. Some lenders factor in whether you have a landline rather than a mobile number on applications. While this won’t affect your credit score, it could make a difference in the amount you can borrow and the rates. However, if you suddenly change to have a landline and not a mobile, this can also affect your credit chances. A constant change in employers could also affect your credit chances, including constant change in your bank or address. Keeping these consistent can help you secure credit and a mortgage. The same can be said for job titles, phone numbers, email addresses and other information. It is important to always try to use the same information whenever you’re applying for credit.

10. Check for default errors on your account

Another problem that users find is that they have a default on their credit reference file that shouldn’t be there. A default is when you were due to pay back credit, but hadn’t. This is a black mark on your record and negatively impacts your score. However, this isn’t always the case. Sometimes there are errors and you challenge these and get them removed. More often than not, the three credit reference agencies are very helpful and will look into the matter for you. Sometimes the mistake is a clerical one and therefore, it can be removed. Other times, it might be a mistake on the part of a past lender or it could be a dispute between you and a lender. If there is a problem, that you think is unfair, you can complain to the lender to have it removed or add a notice of correction to your file. These can help you improve your score when it is unfairly being tainted by an error.

How you can use Creditspring to positively impact your credit score

If you’re looking to improve your credit score so you can build credit to buy a house, then you should consider Creditspring. Credit spring has a financial stability score, which is a calculation based on a combination of your credit score, credit situation and other vital data that is analysed. Every month that financial stability is reassessed with new metrics added so it is up-to-date and accurate. You will be told how much you can borrow and be provided with a number of tips of how you can improve your borrowing limit. Instead of paying complicated interest fees, with Creditspring you pay a small monthly membership fee. Therefore, you spread the cost for items over one year. This makes it much more affordable when you’re looking to get credit, and a great way to build your credit score if you pay your membership fees on time. And if you’re able to repay early, it is easy to do and this will help further to increase your credit score. Therefore, with the help of Creditspring, you could afford a better mortgage with higher credit amounts and better interest rates.