‘Will a low credit score affect my chances of getting a mortgage?’
Published 6th March 2018
People worry that it can be difficult enough getting a mortgage deal with a reasonable credit score – but what do you do if you don’t even have that? If you’re in that position and you’re asking yourself, “How do I get a mortgage when I have no (or a low) credit score?”, then you’ve come to the right place. We’ve gathered together here all the information you need to help you to achieve your dream of homeownership.
- I’ve never had credit before. Is this a good thing?
- How this all effects you?
- A word of warning
- What next?
- Take care of the basics
- Make good any problems
- Start building a good credit history
- How can we help you?
As straightforward as this process is, it is likely you will still need some more in-depth advice into each area, so read on for more information.
Can I Get a Mortgage With No Credit Rating?
First up, an uncomfortable truth. You might think that if you haven’t had credit before – or if you’ve had very little credit, which you’ve paid off as agreed – then you’re in a strong position when it comes to applying for a mortgage. You have no black marks, no red flags, no financial skeletons in your closet. The bad news is that you are potentially in no better a position than if you had a chequered credit history – and, in fact, you could be worse off.
The reason is that lenders look for a pattern of behaviour as part of the process of making a lending decision, and if there is no record of behaviour to see a pattern in, then you are an unknown quantity. You could be seen as a risk, as they have no evidence that you can manage your finances well.
We know that seems unfair, but you need to know where you stand.
Poor Credit Score Mortgages
We’ve already mentioned that you could be seen as a higher risk if you have no or a low credit score. Let’s consider the potential impact of that on any mortgage applications you might make.
- The lender says ‘No’ – they just turn you down flat.
- The lender asks for a bigger deposit – they’re not prepared to offer you as much as you want to borrow, but they do make an offer, leaving you with the problem of coming up with the additional money.
- The lender charges higher fees – limited choice could result in you having to pay more to the lender that is happy to assist.
- The lender charges a higher rate of interest – they do this to reflect the perceived increased risk of lending money to you.
All of this can be dispiriting. It can feel like you are being unfairly punished, sometimes for no reason other than that you are just starting out and have yet to prove yourself.
Sometimes you just have to take their decision on the chin, either because you can’t at the moment raise a bigger deposit or because you have to wait for something to drop off your credit report. (Things typically stay on there for six years.)
Other things you can do something about, and we’re going to take a look at those things shortly.
How do I repair my credit?
If you’re trying your hardest to find a lender that will accept you for a mortgage, PLEASE resist the temptation to send as many applications as you can to a range of lenders in the hope that one or two of them will accept you. Mortgage hunting when you have a low credit rating is NOT a numbers game, and contacting multiple lenders at the same time will only cause further harm to your morale and credit score, for two reasons:
- Your only options for lenders to approach will be those you find on the high street or online. These mainstream lenders will always be the most cautious and least flexible when it comes to granting a mortgage, and the chances of refusal are high if you have a low credit score, or no credit history at all.
- Your approaches to multiple mainstream lenders (especially without expert guidance to make your application with a low credit score as strong as possible) is likely to result in multiple rejections. Being turned down for a loan or mortgage also shows up on your credit history, raising further red flags, and so a string of failed applications will only damage your credit score even more.
It is far better to be selective and targeted in your application for a mortgage when you have a low credit rating. Worried that you might have done something to harm your credit score? One of our experienced advisers will be happy to talk it over with you and propose a course of action to remedy the situation.
What Can Be Done About a Low Credit Score?
As we’ve established, whether you have a credit history with a low score, or little or no credit history to speak of, you need to approach getting a mortgage in pretty much the same way. The main thing you have to do is establish a reasonable credit record, and we’ve broken down some of the actions you can take into these three stages:
Stage 1: Take care of the basics
Stage 2: Make good any problems
Stage 3: Start building a good credit history
We’ve broken things down further and explained each individual step you need to take within each stage, to make it all as straightforward as possible.
Let’s get started.
How Can You Improve Your Credit Score?
There are some things you can do that are pretty basic. These are good practice for everyone, no matter what their credit status is – think of them as housekeeping duties, and get into the habit of doing these regularly, perhaps every one or two years.
MAKE GOOD ANY Credit ISSUES
Now you’ve covered the basics, and made sure that all the information on your credit record is accurate and up-to-date, the entries that remain on it will either paint a good or poor picture of your financial history (or maybe a mix of the two). Healthy entries showing consistent repayments of loans and lines of credit are great, but anything classed as a negative credit event could be problematic to your overall credit score, and thus your ability to get a mortgage.
Not all bad credit issues can be resolved, but if you can do something about any of the black marks on your file, then you should take action. The more time that has passed since the unfortunate events happened, the less they will matter now, but it will be best to get them out of the way. Whatever you can do to help your immediate situation will have a positive impact on any upcoming mortgage application, and will definitely stand you in better stead in the future. Here are a couple of quick fixes to try:
1. Get payments up to date.
Are you currently late with any of your payments? Have a check, and make sure that you have cleared any outstanding balances to give yourself a clean sheet where you can. Remember, paying bills or loan instalments on time will show in your favour on your credit history. If you are always waiting until red bills arrive before sending payment, then change your ways and stop this bad habit from wrecking your credit rating.
2. Settle outstanding debts.
Similar to the above, if you are able to pay off any debts or balances that have been left hanging, this could help improve your credit score. If you were served with a default notice in the past, or had a CCJ registered against you, then these issues will fall off your credit record after six years. But until that happens you would be well advised to settle debts and make issues right with your financial past where you are able to, rather than leave them still outstanding. This will help a lender to look more favourably on your application.
Start building a good credit history
In order to prove you will handle your accounts responsibly, you have to have some accounts to handle. That means you need to access some form of credit. If you have a mobile phone on a monthly contract, then that’s a start and it should help – but not as much as having a loan from a major bank, for example. Here are some suggestions.
Can I remortgage with a low credit score?
Most mortgage lender’s run a credit scoring system, so if you have a low credit score that can make it difficult to meet the minimum credit score for each individual lender. Thankfully there are mortgage lender’s who do not credit score but ‘credit search’, meaning the lender will search your credit report as a whole to check that each account conduct meets their criteria not just focusing on the score.
Specialist Mortgage Broker
If you’re struggling to get a mortgage because you have no or a low credit score, or you’re just not sure what to do next, get in touch, because we can help. We have a specialist team of mortgage brokers who have experience of working with people with a low or no credit score, plus access to the lenders from across the UK mortgage market – meaning we can access deals you probably can’t. Contact us now for free initial no obligation help and advice.
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- - What is a bad credit score?
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- - How do I check my credit score?
- - What is a credit score?
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