Do you have a poor credit score? It doesn’t mean home ownership is out of reach



13 July

Credit scores are used by mortgage lenders to assess the risk you pose. However, a poor credit score doesn’t automatically mean you can’t take out a mortgage to purchase a home.

According to a survey published in MoneyAge, poor credit scores have deterred 1 in 10 Brits from applying for a mortgage. Yet, while a poor credit score can make securing a mortgage more difficult, there may still be options available.

In some cases, you may still be able to move ahead with home ownership plans now, while in others delaying plans while taking steps to improve your credit score can mean you’re in a better position in the future.

If you’re hoping to buy a property and are worried about the effect your credit score could have, read on to find out why credit scores are important and the steps you could take.

Credit scores are used by lenders to assess the risk of lending to you

Your credit score is a tool used by lenders to assess how risky you are to lend to and the likelihood that you’ll default on repayments.

As a result, it can have a direct effect on the outcome of credit applications, including mortgages.

Credit scores are calculated using information from your credit report, which lenders may also review. This information includes things like your payment history, current levels of debt, and how long you’ve held accounts for.

Red flags on your credit report include missed payments, individual voluntary arrangements, county court judgments, and bankruptcies. If any of these are on your credit report or your score overall is low, you may put off applying for a mortgage believing you won’t be accepted.

Here are some things you can do to improve your chances.

5 things that can help you secure a mortgage with a poor credit score

1. Review your credit report

If you’re thinking about applying for a mortgage, whether right now or in the future, one of the first steps you should take is to review your credit report.

There are three main credit reference agencies in the UK – Equifax, Experian, and TransUnion – and you can review your own report for free. Viewing your credit report will not harm your credit score and you can usually access it online.

Despite this, the survey found that 62% of people do not know what their credit score is. Without this information, it can be difficult to assess how it’ll affect your credit application. Your score may not be as bad as you think.

Mistakes on your credit report, such as wrong addresses, can harm your score. So, it’s worth going through the report carefully and contacting the agency if any of the information is incorrect.

2. Look at what steps you can take to improve your credit score

As well as flagging up mistakes, reviewing your credit report can highlight ways to improve your score.

Improving your score means you have a better chance of your application being successful and accessing a more competitive rate of interest, but 60% of people said they’d never taken any steps to do so.

There may be simple things you can do to boost your score, for example, registering on the electoral roll. Other steps, such as reducing the amount of available credit you use or paying off other forms of borrowing can also help.

If you have any red flags on your report, they are often removed after six years. So, if you’re nearing this time, waiting to apply for a mortgage can make sense.

It can take several months for changes to show up on your credit report, so this is a step you should take sooner rather than later.

3. Put down a higher deposit

Traditionally, aspiring homeowners have needed a 10% deposit to purchase a house, and some options mean required deposits are just 5%.

However, a poor credit score means you may be viewed as a greater risk to mortgage lenders. So, having a higher figure to offer as a deposit can help increase your chances of securing a mortgage.

This is because you may be borrowing less and the equity you own will be higher. This can provide the lender with greater security if you default on payments.

4. Find the right lender for your circumstances

There are a lot of mortgage lenders to choose from, and it’s worth spending time finding the one that’s right for you before you apply.

When you apply for a mortgage, the lender will usually carry out a hard credit check, which shows up on your credit report. Several hard credit checks close together can harm your credit score and put off potential lenders as it suggests you’ve increased your credit commitments.

Lenders all have their own criteria, and just because one lender may reject your application doesn’t mean they all will. There are lenders without a high street presence and specialist lenders that may suit your needs.

As a result, it’s important to understand a lender’s criteria and whether you’re likely to fall into this. We’re here to help you understand which lenders are most likely to say “yes” to your mortgage application.

5. Be prepared to accept a higher rate of interest

The interest rate of a mortgage affects your monthly repayments and the overall cost of borrowing.

If your credit score is low, you’re likely to be offered an interest rate that is higher than the market average. Again, this is to reflect the higher level of risk the lender is taking. Be prepared to accept this and ensure that repayments would still be affordable.

Keep in mind that the interest rate you accept now isn’t what you’ll pay for the entirety of your mortgage.

By the time your initial deal ends, your credit score may have improved, especially if you’ve kept up with repayments, and you may be able to access a more competitive rate.

Speak to us about your mortgage needs

If you want help applying for a mortgage and understanding what your options are, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.


Mathew Angell

Director & Financial Lifestyle Planner

Matt’s goal is to help you develop great financial habits and make sure your life is at the forefront of all plans that are put in place. His vision is to be your trusted partner through your life, there to help you through the difficult times and appreciate the good.