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How Does My Credit Score Affect My Mortgage Application?

Your credit score dictates the borrowing opportunities you have.

Millions of homes are sold each year, with more than 65% of homeowners in the U.S. having an outstanding mortgage to pay, and just over 44% of UK residents still having a mortgage outstanding.

Its clear homes are always in demand each year, and with over a 90% acceptance rate for mortgages, it leaves people who have been denied a mortgage asking themselves.

“How does my credit score affect my mortgage application?”

Many factors can impact your credit score, and the table below shows how much mortgage interest you are likely to pay depending on your credit score rating along with what it means for borrowing money.

Credit Score RangeHow It Impacts BorrowingMortgage Interest You Could Pay (%)
780-850You can qualify for the best interest rates on a mortgage.2.5% to 2.75%
740-779Usually, qualify for the best interest rates on a mortgage.2.75% to 3%
720-739You could get most mortgage deals but not all the best deals.3% to 3.3%
680-719You can get a good range of mortgage rates with reasonable interest rates.3.3% to 3.6%
620-679You can get good mortgage rates but at a higher interest rate to pay.3.6% to 3.9%
580-619Can get a good range of mortgages but at a significantly higher interest rate.3.9% to 4.3%
520-579You may get some mortgage deals but with higher interest rates, with limited options.4.3% to 4.7%
<520You have more chance of being declined a mortgage or struggling to find one without higher interest rates.4.7% to 6.5%+
Credit score ranges and how they can impact the interest you pay on your mortgage.

(Information collected from Experian and Integrated Loans)

As you can see from the table above, the lower your credit score the more you have to pay on interest.

This is not just on mortgages, but this will also impact the types of loans you can take out along with the credit cards you have access to.      

But there’s more to this…

You see, your credit score rating is impacted by 5 key areas which measure how you manage your credit along with the length of your credit history, and these include:

  • 35% = weighting on your payment history.
  • 30% = weighting on how much you owe.
  • 15% = weighting based on the length of your credit history.
  • 10% = weighting is based on the types of credit or lines of credit you have.
  • 10% = weighting on new credit inquiries when applying for more lines of credit.     

You can see how these credit score weighting criteria are displayed in the pie chart below.

Now, your credit card carries a lot of high interest, which can play a key role in your mortgage application. So, you should address your credit card debt ASAP, you can find out how you can pay off credit card debt fast in this post here.

6 Factors That Impact Your Credit Score

Based on how your credit score is measured, you would need to pay attention to 6 factors that impact your credit score and increase your credit score faster, which are:

  1. Your utilisation limit.
  2. Your payment history.
  3. Your derogatory marks.
  4. Your overall credit age.
  5. The number of accounts you have.
  6. Any hard enquiries.

These 6 factors above will play a key role in your managing your credit score more efficiently, not to mention lowering the interest rates you pay on any loans, mortgages and credit cards.

While at the same time unlocking more borrowing opportunities if you need to take out any more lines of credit.

The video below explains how these 6 common factors impact your score along with how you can use them to your advantage to increase your credit score faster, so take a look.

What Credit Score Should You Have Before Applying For A Mortgage?

There is no specific credit score that will define whether or not you can get a mortgage or not. But, the higher your credit score is, the better deals are available at lower interest rates, however, having a score of at least 620+ can give you a wider range of mortgage deals.

But there’s more to this…

You see, when applying for a mortgage or any form of debt, the lender you choose will create a credit score for you according to Experian.

This allows your lender to assess your general habits and how much of a risk you are when borrowing money and paying it back.

Generally, people with higher credit scores are seen as a lower risk and likely to be accepted.

That’s not all…

Your credit score continues to go up based on your utilisation limit, your payment history and the length of your credit history. 

Although other factors are involved, these areas make up the largest portion of your credit score weighting. 

Elevate your creditworthiness and unlock the doors to financial opportunities with the Financial Freedom Blueprint. This guide is your ally in understanding and improving your credit score, laying the groundwork for successful lending experiences. Don’t let a number define your financial journey—gain the insights to boost your score and broaden your horizons today!

TOP TIP:
If you have a credit card, keep your usage limit under 30% to show you are a responsible borrower and not dependent on debt, if you can keep it under 10% or even 5% then this works in your favour too.

Why Do Lenders Check Credit?

Lenders will check your credit to assess whether or not they should lend money to you, not to mention the credit score will indicate how much of a risk you are financially and if you’re likely to pay the money back. The higher your credit score the better chance you have.

That’s not all…

If you have been refused credit, the lender must disclose this to you along with the credit reference agency they used to come to this conclusion.

According to Citizens Advice, these credit reference agencies will keep a file of the following things:

  • Electoral Roll: Shows addresses that you were registered at to vote along with the dates this happened.
  • Public Records: Anything that you have been involved in related to debt, court judgements and bankruptcies.
  • General Account Information: This will show how you manage your finances in your general bank account along with borrowing money. (This is where lenders can see if you have made payments on time to cover your debt, along with paying your general expenses on time i.e. no direct debits missed for example). 
  • Home Repossessions: Information is from the council of mortgage members about any homes that may have or have previously been repossessed.
  • Financial Associations: This will show people you joint up with to apply for credit.
  • Past Searches: This shows the lender how many companies may have seen your information over the past 12 months.
  • Any Linked Addresses: If you have lived at any previous addresses, then this will show up to the lender.

Some people may face the issue of fraud or identity theft in the past, in this case, this shows up on your credit file also to help protect you.

Does Getting Pre-Approved For A Mortgage Affect Credit Score?

First of all, a pre-approval allows the lender to determine how much they will lend to you along with the interest rates and fees you can expect to pay. 

But, does getting pre-approved for a mortgage affect credit score?

If a hard pull on your credit happens, yes it can temporarily drop your credit score. But, as long as the lender has a soft pull on your credit, and only shares an estimate of your score, then your credit score won’t be affected.

That’s not all…

You see when taking on new debt, especially a mortgage, you are likely to get a hard pull from one of the credit bureaus your lender chooses which will stay on your credit file for a certain period.

Not to worry as this is only temporary and sometimes lasts up to 2 years.

Now, this will especially come in handy when you’re buying a house at auction, as there are different ways you can buy an affordable property. You can find out more about buying a house at auction in this post here.

TOP TIP:
To maintain a steady credit score, ensure you don’t have more than 2 to 3 hard pulls within 1 year, as applying for multiple lines of credit can significantly reduce your credit score.

Can You Be Denied A Mortgage After Being Pre-Approved?

Yes, you can be denied a mortgage after being pre-approved. This will be down to changes in your credit history or current financial circumstances, which is why it’s advised not to change your current financial habits or take on more debt during the mortgage process.

But there’s more to this…

Although the mortgage process can be long, here are some tips you can follow to ensure you make it to the closing stage for your mortgage application:

  1. Do not take on more debt during the process.
  2. Don’t make large deposits into your bank account as you will need to verify where it comes from, if you can’t then this can be an issue.
  3. Make sure you don’t make large withdrawals, especially for no reason.
  4. Keep adding more money to your savings account, the more you add then this will show you are still in control of your financial situation especially if you already have a down payment saved up.

Just Before You Go…

Multiple factors can impact your credit score, but you should take the necessary steps to increase and maintain your score.

By doing this you can get a wider range of mortgage deals at better interest rates.

However, the longer your credit history is along with your spending habits being consistent, you can increase your credit score over time. 

So, if you’re asking yourself “how does my credit affect my mortgage application?” then this post has you covered.

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