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What credit score is needed to buy a house and how to get it?

Are you looking to fly the nest and hoping to go straight into your own home? Maybe you have been renting for a while and you’ve now decided that the time is right to lay down some roots and buy your own place. Perhaps you are just planning ahead and trying to find all of the information that you need to make homeownership easier.

Knowing what credit score is needed to buy a house can help you get everything lined up before you apply for a mortgage. We’ve all heard those horror stories about people being unable to get a mortgage because of a slight blip 5 years ago when they missed a single payment. Is there any truth to these stories? Do we need the perfect credit score to buy a house? Let’s take a look.

What credit score do I need to aim for?

When looking at what credit score is needed to buy a house, you may be a little surprised by the answer. In theory, your credit score doesn’t really matter! When it comes to a lender deciding on whether or not to grant you a mortgage, the lender never even sees your credit score. Now, before you get too excited and think that mortgages are now suddenly easy to obtain, here’s the bit that matters - your credit file is still important.

When you apply for a mortgage the lender will obviously see the application form that you have completed. This will give them a whole host of information about you and your income. The lender is then able to see your credit file and this is what it will use to make a decision. Your credit file contains your credit history showing how you have managed past and current lines of credit. Missed payments, late payments, and defaults will all have an impact.

How does my credit file affect my mortgage application?

Now that we have seen that asking ‘what credit score is needed to buy a house?’ is almost irrelevant, the focus needs to be on your credit file. Lenders are in a risky business. They lend money when there is always a possibility that it won’t be paid back. They use your credit file to try and mitigate this risk. Your past behaviours are used to try and predict how you will behave in the future and if you will maintain your repayments.

The worst case is that your credit file sees your application declined. This could be because there are just too many issues that the lender can not ignore. Other times, it could be that you have the odd missed or late payment here and there. Your credit file will show the lender all of these going back 6 years. If these are minor it is possible that you will still be given a mortgage. However, you will find that you end up with a much higher level of interest compared to someone who has no history of late/missed payments. If you don’t want to be paying thousands of pounds extra, is there anything that you can do? Of course, there is and that is what we’ll look at next.

How can I make sure that I get the best mortgage product possible?

If you already know that your credit file has the odd blip here and there, it is reassuring to know that there are still lenders who will be willing to give you a mortgage. What’s even more reassuring is that there are steps that you can take to increase your chances of been given a preferable interest rate. Some of the steps that you can take include:

Speak to a mortgage advisor

Independent mortgage advisors have access to an array of lenders. The best ones have access to the entire market. By taking the time to speak to one of these you will find that they can point you in the direction of lenders who will give you the best deal based on your circumstances.

Increase your deposit

The bigger the deposit that you can put down the lesser the risk the lender is taking. Although you can get mortgages with deposits as low as 5% if you have issues that are going to show in your credit file you’ll need to be looking for a bigger deposit.

Clear up your credit file

Although your credit file will show your financial dealings over the last years, it is the last 1-3 that really matter. If you know that there are issues here, is there anything that you can do to solve them? Can you get back on top of an account in arrears? Are there entries that aren’t accurate that you could challenge?

How can I build my credit?

It is important to have your credit file in the best possible state before you apply for a mortgage. Now that you can look beyond what credit score is needed to buy a house, you can put in the work to improve your report. Here are some steps that you can take:

Reduce your debt

If you already have large debts then a mortgage lender may get a little nervous. They will be looking at how you can maintain these payments as well as committing to a monthly mortgage payment. The best thing to do is reduce your level of debt before you apply.

Focus on utilisation rates

Lenders don’t want to see that you have maxed out every credit card that you have or that you have numerous loans on the go. When you are given a credit limit this is not something that you should be aiming for! The opposite is true - you should avoid getting anywhere near your limit. It is best to use only around 30%-40% of the credit available to you.

Get on the electoral roll

If you are not already on the electoral roll then do it now. This is something that is easy to do and can give you a real boost in terms of credit.

Credit builder tools

There are credit cards and loans that are designed to help people build credit. Managing these responsibly can see positive entries being made on your credit file. There are also tools such as Wollit that can be used to improve your credit. This is an app that helps users to make the most of their money. Wollit Credit Building charges a monthly fee and reports that payment to all three credit reference agencies, which can give their credit file a boost. by building up their positive credit history. Wollit, credit cards, and loans all show lenders that you can be consistent when it comes to repayments and this is what they need to see.

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Terms apply. Results may vary. Improvements to your credit score are not guaranteed. Wollit Credit Builder plans are unregulated.