The credit score. Just like a favourite Simpsons character, an opinion on Brexit and a belly button, everyone’s got one.
This magic three figure number can open the door to your new home or politely ask you leave via it, being sure to close it as you do.
But if you’re interested in finding out what credit score is needed to buy a house, you’ll first need to understand what the credit score is.
Put simply, it’s a rating used by lenders to assess how credit-worthy you are and can effect everything from the interest rate you’re offered to whether or not they slam the credit door in your face.
It’s worked out by credit reference agencies like Experian and Equifax, based on your financial situation and history of borrowing and paying back. Basically, it tells them how likely you are to keep up with your payments and hand them over on time.
Credit advice service Money Saving Advice reveals both companies use different scales. Experian says 961 – 999 is ‘Excellent’ and should unlock the best credit cards, loans and mortgages. 881 – 960 is ‘Good’ and will get most of the above. 721 – 880 is ‘Fair’, opening up OK interest rates but with low credit limits. 561 – 720 scores ‘Poor’ and will limit your offers of credit and raise the interest rates while 0 – 560 is ‘Very Poor’ and basically ruins your chances of getting a loan or mortgage.
Equifax uses slightly different parameters with 467 and above getting ‘Excellent’, 420 – 466 scoring ‘Good’ 367 – 419 ‘Okay’, 279 – 366 ‘Poor’ and 0 – 278 ‘Very Poor’.
So, the higher it is, the more likely you are to be accepted for a mortgage or get a good interest rate.
That’s the theory, at least.
Credit…a simple tale of swings and roundabouts
But if only getting a mortgage was as simple as achieving the right three figure number. There are lots of factors involved and what you lose on the swings, you can always make up on the roundabouts. Let’s leave the fairground metaphor behind and explain in plain English.
Income is all important
You may have an excellent credit score, but without the means to keep up with your mortgage payments, lenders won’t want to know. So if you’re in a high earning bracket and have a regular wage, your credit score may not make much difference at all as they know you can easily meet the payments.
What’s your risk?
As we know, lenders are cautious types and for good reason. They have recently caused a global financial crisis due to their risky lending policies and so have become increasingly cautious in their habits. Your credit score is just an indication of your financial habits based on past behaviour and can’t predict the future with 100% accuracy. Though we’re fairly sure the credit reference agencies are working on this.
When they talk about risk, the amount lent is the biggest factor. Which means lower your mortgage amount and you’ll be more likely to be accepted. And the easiest way to do this is pay a bigger deposit upfront, as well as only looking at properties you know you can afford.
For example, a 10% deposit coupled with repayments that take you close to your affordability will require you to be up in the lofty heights of ‘Excellent’ with both Experian and Equifax (over 961 and 467 respectively).
But if you have a deposit of 20% in the same situation, you’ll only need to be ‘Good’ which is over 881 for Experian and above 420 for Equifax.
So, if you want to get your mitts on the best mortgage, don’t be Fair, be Good or Excellent.
How to check your score
If you’re unaware of just where you rank on the scale of credit justice, checking it is now really easy. The main reference agencies Experian and Equifax both let you see what the lenders can, and also offer advice on how to improve your score and increase your chances of getting a better mortgage deal. Third party credit advice services such as Clearscore offer a similar service. They can also put you in touch with mortgage lenders who may be able to help if your current score isn’t making the grade with the big high street banks and building societies.