Written by Katie Cullen
10th January 2017
(Last updated on Wednesday 25th April 2018)
If you’re thinking of buying a house like a proper grown up then there are things you’ll need to do to prove to ‘the man’ that you are a sensible adult. This will begin with your credit score. A credit score is what lenders (banks etc.) use to determine whether you qualify for a loan. So, basically, if you are looking to get a mortgage and move house, you need a good credit score. It’s a bit of a pain in the backside because it means that if you want to get a mortgage anytime soon then you need to be good with your pennies… You can’t constantly live in your overdraft or blow £300 at the bar on a lavish night out! The lenders want to see you being smart and sensible with your dough.
What’s considered a ‘good credit score’ varies between lenders as not all mortgage providers and lenders of payday loans will use the same credit reference agency. A credit reference agency is a company that keeps your credit score, such as Experian, Equifax, or Call Credit. Generally, you need to have a high enough income to cover the repayments of whatever it is you are taking out a loan for…. Presumably (because you are on Compare My Move), this is for your mortgage.
Lenders give varying scores and have their own criteria for what makes a good credit score; some lenders can be pickier than others. However, generally, a good credit score is between 650 and 750. Yep, actual numbers... Not just good or bad... Suddenly it feels like a test! Don’t worry though… we have all you need right here to help you pass the test with flying colours.
If you want to buy a house, your lenders will consider criteria such as:
Your credit report – This includes a record of your credit history, how much of your available credit you are using, debt repayments from banks, credit card companies and governments and public records such as if you are on the electoral role.
Your credit application – On your application, the lender will ask you why you need to borrow the money, what job you do, what your income is and then determine if you can repay the loan.
Past information – If you are already a customer, the lender can use information about you that they already have.
You can take a peep at your credit score files from any credit reference agency. To see a basic version of your score, you can use services from Experian, Equifax, Callcredit or for free with Noddle.
If you want to really delve into the abyss then you can request a statutory report from Experian, Equifax, or Callcredit for a more in-depth overview of your score. You’ll just need to pay a measly £2 for the privilege. This report will allow you to see exactly how credit agencies have calculated your score. This is like having insider info and it’s useful as you may find mistakes on your file which could have a negative impact on your score. Can’t have that.
You might be worried about your credit score or even quaking in your boots, so it’s a good idea to be aware of what could impact it. You’ll want to avoid things that have a negative effect on your credit rating in the first place... We’ll let you in on a few secrets... Here’s what could lower your score:
High levels of existing debt – Mortgage providers are pretty wary of lending money if it seems you are already juggling and struggling with debt.
Missing or late payments – Payments on anything from a current mortgage, personal loan, tax and electricity bills that you put off paying will stay on your file for up to six years so be savvy!
County court judgements (CCJ) – Having one of these for an unpaid bill can have a negative impact on your score and remains on your file for six years! Yikes!
Unused credit cards – Lenders will look at the amount of credit available to you, not just the amount of credit you have used... Crafty hey?
Moving home regularly – Living in a property for a long time adds confidence for a lender so if you can stick around in one place for a while, do!
Applying for lots of credit at once – This shows up on your credit report. Go Easy! Stagger your applications or ask lenders for a ‘quotation search’ if you only want to compare loans (this will not show on your report).
You might be worried about a below average credit score, but there are options to improve your credit rating quickly. Our quick fixes are:
Register yourself on the electoral roll – Lenders will look at the electoral roll to verify your identity. Without registering, you will be a higher fraud risk so go do that, like, now.
Stop applying for loans – Being declined for a loan after loan looks pretty bad on you and will dramatically lower your credit rating so stop now!
Use a credit building card – These are good if you have poor credit. Interest rates are higher for these cards though so don’t use it like a regular credit card. Use it for one small monthly payment to be repaid easily.
Cancel any unused credit cards – Unused credit cards increase the risk of creating mistakes on your credit file and create a negative impact on your score. You don’t need it – Get rid of it.
If you have a really rubbish credit score then you can’t fix it overnight. It will take months before you see a difference in your credit rating. Here are the best ways to improve your credit score for the long-term. Hang in there...
Pays bills on time – Late payments will have a big impact on your credit rating and the pesky things stay on your file for up to six years. Try and sustain 12 months of successful payments. Keep an eye on when direct debits come out and prepare yourself for when they do.
Use a pre-paid card – Pre-paid cards are good if you’re a habitual overspender. Budget the amount of money you want to spend each month on things other than bills and monthly payments, and add it to the card. These cards help build credit by charging a small monthly fee for the service. After 12 months, using this card will show up as a year of successful payments.
Don’t use credit repair companies – Many firms claim they can repair your credit rating by negotiating or taking action that legally they can’t, or they’ll encourage you to lie to credit reference agencies, which again you should not consider. Steer clear!
Pay off existing debt – Keep on top of your payments and minimise the amount of existing debt currently in your name. Over time, this will have a positive effect on your credit report. Happy days!
Limit your credit applications - minimising your credit applications will help keep your credit score low (Techround.co.uk)
Stay in one location – Although this depends on your lifestyle and current situation, staying in one location for a certain amount of time will help improve your score.
If you are looking to buy a house but you don’t have great credit, there are some mortgage packages out there for those with a poor credit rating. They will come with higher interest rates and charges as people with poor credit are considered a higher risk. So, there’s a bit of a toss-up for you there. If you plan on buying a home, check your credit score with a credit agency and talk to a mortgage advisor to see what might be available to you. If your options are limited, it might be an idea to plan for a mortgage in the future and work on improving your credit score in the meantime.
We hope this has given you some insight on ‘what is a good credit score’. There’s really no rush! People stress about getting a mortgage but you can only do what you can do, no use obsessing and being miserable. Live your life, be sensible and things will work out.