How do credit scores affect mortgages?

Applying for a mortgage can be a lot of work. There are documents to collect, mortgage brokers to talk to and application forms to fill out. One aspect of the process to think about is how your credit history might affect your chances of successfully applying for a mortgage.

For many people, a mortgage is the biggest form of loan they’ll ever get, and mortgage lenders want to know that the debt will be paid back. Below, we answer some key questions about why your credit history might matter when getting a mortgage.

How does your credit history affect getting a mortgage?

Lenders use your credit report to get information on how reliable you have been at paying back debts in the past. When you apply for a mortgage you will have to supply payslips, P60s and bank statements to show how much you earn and what your monthly budget might look like. This shows lenders your current financial situation, but to predict how you might behave in the future they will also look at your credit report.

Your credit history might also affect your mortgage interest rate, in the sense that the types of mortgage you are offered will be affected by how responsibly you’ve borrowed in the past. Special introductory rates or other attractive mortgage offers might only be available to people whose credit history meets certain criteria.

Can you get a mortgage with no credit history?

It may be possible to get a mortgage if you have no credit history, but there’s a fair chance it will make things harder. If lenders have nothing to go on, they can’t be sure whether you are a responsible borrower who will pay back the money you’ve been given. If you do find a lender willing to offer you a mortgage, it might not be the type you’d prefer and the interest rate might be less competitive.

If you are worried that your lack of credit history might affect the success of your application, you might want to take some time to build a history before applying. There are specialist credit cards for people who have not used credit before, as well as other ways of building a credit history.

Can you get a mortgage with credit card debt?

Credit card debt won’t affect your ability to get a mortgage by itself. It depends on how big the debt is, how capable you are of paying it back and how well you have kept up repayments. A small amount of debt that you make regular payments on could be fine if you earn enough to cover both credit card and mortgage payments. On the other hand, if you have defaulted on credit card payments or have run up debt on several cards, lenders might decide you are too much of a risk.

Helping to improve your credit score

If you’re thinking of a buying a home and want to improve your chances of being approved by a lender, you’ll want to make sure your borrowing history is in good shape. There are different factors that affect your creditworthiness and you can read in more detail how to get credit-ready for a mortgage application in this article.

Things that can help improve your creditworthiness include making payments on loans, credit cards and bills on time each month. You should also make sure you are on the electoral register so that lenders can verify your address.

When you make an application for credit, it is reflected in your credit report as a ‘credit search’. If you make a lot of applications, it might suggest to lenders that you are reliant on credit. So, if you plan on applying for a mortgage, it might be helpful to be selective above what other loan applications you make.

To find out more, you can check your FREE Equifax Credit Report & Score which gives you a view of your borrowing history as well as an indication of how creditworthy a lender may find you. It’s free for the first 30 days and £14.95 monthly thereafter.