If you have a low credit score, you might be concerned that getting a mortgage will be difficult. While having a low credit score can make things more challenging, it’s not impossible. Many lenders are willing to work with people who have poor credit, though there are some important factors you need to understand before applying. In this guide, we’ll explain how lenders assess credit scores, what credit score you need for a mortgage in the UK, and what you can do to improve your chances of getting approved.
How lenders assess credit scores for mortgages
Lenders assess your credit score to determine how risky it is to lend to you. Your credit score reflects how well you’ve managed your finances in the past. This includes your history with credit cards, loans, and other types of credit. The higher your score, the more likely you are to get approved for a mortgage with favourable terms.
When you apply for a mortgage, lenders will usually look at your credit score along with other factors such as your income, debt, and the size of your deposit. While your credit score plays a significant role in the decision-making process, it’s not the only thing that lenders consider.
What credit score do you need for a mortgage in the UK?
Most of the major credit reference agencies (CRAs) in the UK classify credit scores into five categories: excellent, good, fair, poor, and very poor. Each CRA uses its own numerical scale to determine your credit score, so the exact number may vary slightly across agencies. However, your score will likely fall into the same category with all agencies, as they base their scores on similar financial history factors.
For example, if one agency classifies your score as “good,” the others probably will too. Below is an overview of what a ‘good,’ ‘fair,’ or ‘excellent’ credit score looks like across the three largest CRAs in the UK:
Experian
- Fair: 721–880
- Good: 881–960
- Excellent: 961–999
(Source: Experian Guide)
TransUnion
- Fair: 566–603
- Good: 604–627
- Excellent: 628–710
(Source: Finder – TransUnion)
Equifax
- Fair: 380–419
- Good: 420–465
- Excellent: 466–700
(Source: Finder – Equifax)
Having a fair, good, or excellent score with any of these CRAs can improve your chances of securing a mortgage.
Factors that affect your mortgage eligibility
Lenders don’t only look at your credit score when deciding whether or not to approve you for a mortgage. There are other factors that influence their decision:
- Income and employment history: Lenders want to know you have a stable income to pay back the loan. Self-employed applicants may need to provide extra documentation, such as tax returns, to show a consistent income stream.
- Deposit size: A larger deposit can improve your chances of getting approved, as it lowers the risk for the lender. With a lower credit score, you may be required to have a larger deposit to secure the loan.
- Current debts: If you have outstanding debts, this could affect how much you can borrow. Lenders will assess your debt-to-income ratio to see how much of your monthly income is already committed to other debts.
- The type of property: Lenders may have restrictions on the types of properties they’ll lend against, such as flats or homes in certain locations. The property must also be in good condition to be used as collateral.
How to improve your credit score before applying
If your credit score isn’t where you’d like it to be, there are steps you can take to improve it before applying for a mortgage. Even small changes can make a difference. Here’s how you can build up your credit score:
- Pay your bills on time: Payment history is one of the most important factors in your credit score. Set up reminders or direct debits to ensure you never miss a payment.
- Pay down existing debt: Reducing your credit card balances and paying off loans can help lower your credit usage rate, which can improve your score.
- Check for errors on your credit report: Sometimes, mistakes are made when recording your financial history. Regularly check your credit report for errors and dispute any inaccuracies.
- Avoid applying for too much credit: Each time you apply for credit, a hard inquiry is made, which can temporarily lower your credit score. Try not to apply for too many credit cards or loans before applying for your mortgage.
- Register to vote: Lenders use the electoral roll to verify your identity. Make sure you’re registered to vote to help boost your score.
How much deposit do you need with a low credit score?
If you have a low credit score, you may need to provide a larger deposit to secure a mortgage. Most lenders will ask for at least a 10% deposit, but with bad credit, you may need to put down 15% or more to increase your chances of getting approved.
A larger deposit helps reduce the lender’s risk by lowering the loan-to-value (LTV) ratio. The lower your LTV, the more attractive you become to lenders. If you have a substantial deposit, you may still be able to secure a competitive mortgage rate, even with a low credit score.
Final tips for getting a mortgage with a poor credit history
If you’re struggling with a low credit score, don’t lose hope—there are still ways to improve your chances of getting approved. Here are a few more tips to help you:
- Shop around: Different lenders have different criteria for self-employed applicants or people with low credit scores. Work with a mortgage broker to help you compare offers and find the best deal.
- Consider a guarantor: If you have a trusted friend or family member who’s willing to guarantee the mortgage, this can help you secure a better deal.
- Look into government schemes: Some government-backed schemes, like Help to Buy or Shared Ownership, may be available to those with lower credit scores.
- Be honest with lenders: Always be upfront about your financial situation. Lying or withholding information could result in the denial of your application.
Final thoughts
While having a low credit score may make it more challenging to get a mortgage, it’s not impossible. By understanding the factors that affect mortgage approval, taking steps to improve your credit score, and exploring options such as larger deposits or government schemes, you can still increase your chances of being approved.
If you’re ready to apply for a mortgage, make sure you have all the right documentation in place and consider working with a mortgage broker to help you navigate the process. With the right preparation, you can secure a mortgage—even with a low credit score.
To learn more about your credit score and how to improve it, check out our credit score guide. Or, if you’re self-employed visit our self-employed mortgage options to find out what might work best for your financial situation.