How to Improve Your Credit Score for a Mortgage

Your credit score is a big part of your application for a mortgage, and if you’re worried that your credit score is too low, then it might be time to look at ways to improve it. 

Knowing how to improve credit score for a mortgage can help you find ways to boost your score before you begin the application process and make you much more appealing to lenders.

What is a credit score?

Your credit score is a type of financial report card. It’s a number that shows how well you’ve managed credit in the past. In the UK, credit scores typically range from:

• Excellent: 800 and above

• Good: 700-799

• Fair: 600-699 

• Poor: 500-599

• Very poor: Below 500

Lenders will use this score as a means of weighing out the risk of lending to you. Having a higher score suggests that you’re a reliable borrower.

How lenders use credit scores in mortgage applications 

Your credit score doesn’t just impact whether you’ll get a mortgage; it can also affect the interest rate you’ll be offered. Generally: 

• Higher scores: Qualify for lower interest rates, which will save you money over time. 

• Lower scores: May result in higher rates or even denial of the loan.

  
  

How to access your credit report for free 

In the UK, you’re entitled to access your credit report for free. ClearScore is a trusted source that gives free credit scores and reports. It sources its data from Equifax.

Errors in your credit report

Mistakes can happen, but what’s important to note is that mistakes on your credit report can negatively impact your score. Common errors to look out for include: 

• Incorrect personal information 

• Accounts that aren’t yours 

• Incorrect payment statuses 

If you spot any errors in your report, then you’ll have to contact the credit reference agency to dispute it and get it amended. By taking the time to go through your credit report and fix any errors, you could boost your score.

How to improve your credit score for a mortgage

Pay your bills on time 

Paying your bills on time has a big impact on your credit score. Even one missed payment can be detrimental. If you want to stay on track: 

• Set up payment reminders

• Use automatic payments 

  
  

Reduce your credit utilisation ratio

Your credit utilisation ratio is the percentage of available credit that you’re using. An example, if you have a credit limit of £10,000 and your balance is below £2,000, your utilisation is 20%. You really want to aim to keep this ratio below 30%, and ideally under 10%, this shows lenders that you can manage credit responsibly.

Don’t apply for too much credit at once 

By applying for credit, you get a hard inquiry on your report, which can temporarily lower your score. If you apply for multiple credit applications in a short time, it signals to lenders that you’re in financial distress. Maintain your credit score by spacing out applications.

Keep old credit accounts open 

The length of your credit history can make a difference. Closing old accounts will shorten your history, which can negatively impact your score. If the account doesn’t have an annual fee, it’s worth keeping it open, even if you don’t use it often.

Diversify your credit mix 

Having a variety of different credit, like credit cards, car loans, and personal loans, is a good way of improving your credit score for a mortgage. But don’t take on new debt if it isn’t needed. Unnecessary debt will do more harm than good.

Pay off outstanding debts 

Reducing the amount of debt that you have shown lenders that you’re a responsible borrower. Try these methods:

• Snowball method: Pay off debts from smallest to biggest to build momentum. 

• Avalanche method: First, focus on the debts with the highest interest rates, which will save you money over time. 

  
  

Negotiate with creditors 

If you’re struggling with debt, it may be worth contacting your creditors. You could try negotiating lower interest rates or more manageable repayment plans. 

It’s important to note that debt settlements can impact your credit score, so weigh it up before you proceed.

Maintaining a strong credit score

Budgeting 

Having a solid budget ensures that you aren’t living beyond your means, which helps to prevent missed payments and excessive debt. There are so many different tools and apps that can help you track your spending and saving, which helps make budgeting easier. 

Avoiding financial red flags 

Certain financial behaviours will raise concerns to lenders, these include: 

• Bankruptcy: Shows past financial distress

• Defaults: Failure to meet your debt obligations

• County Court Judgments (CCJs): Legal judgments for unpaid debts

If you have faced these issues, you’ll need to rebuild your credit by showing responsible financial behaviour over time. 

Preparing your credit score for a mortgage

Check your credit score before applying 

Review your credit score a good few months before you apply for a mortgage. This will give you time to look at any issues that could hinder your approval chances.

Work with a mortgage broker 

Working with a mortgage broker is ideal, as they can give you personalised advice, especially if your credit score isn’t ‘Excellent’. Mortgage brokers can find you a lender that caters to all credit situations, which could increase your chances of being approved.

Knowing how to improve your credit score for a mortgage is vital information that needs to be put into action long before you apply for a mortgage. Using this guidance, you can set yourself up with good financial habits that give you a better chance of securing a mortgage.

Get in touch with J&M Green Mortgage Services Ltd today. Our team of expert advisors can help you with any questions or concerns you might have about your credit score or mortgage application.