Minimum Credit Score for a Mortgage
Navigating the path to homeownership involves several critical checkpoints, and one of them is understanding the role your credit score plays in securing a mortgage.
In the UK, much like in various parts of the world, your credit score is a key consideration for mortgage lenders.
Exploring the minimum credit score required for a mortgage brings us to an important topic that many prospective homebuyers seek clarity on.
We’ll cover essential house buyer information including:
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What a credit score is – how it's determined and where you get one
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How it impacts your mortgage process and what to look out for
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The key changes you can expect based on a good or bad credit rating
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The most common questions on mortgage credit answered
Let’s start at the beginning – we’re going to start from a blank slate as we simplify mortgage lending…
What is a Credit Score?
Your credit score is a number used to measure your reliability to the creditor. It’s a measure of how trustworthy you are as a lender.
This is a measure used primarily by banks and mortgage providers to determine things like:
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The financial services, products, and terms available to you
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Mortgage packages – including fixed and variable rate offers
This makes your credit score a key part of your mortgaging process. If you default on a direct debit or loan payment, miss a payment, or underpay, this affects your credit score.
Equally, paying debts, regular payments on your bills, and a fully paid credit card will improve your credit score.
Who is Rating Your Credit Score – A Brief Outline of Credit Rating Agencies
Credit scores aren’t managed by a government institution, and you can be rated for credit by three different credit rating agencies.
These companies – also known as CRAs – operate independently and have their own calculations to produce your final score. The ‘big three’ are Equifax, Experian, and TransUnion.
All of these companies access the same thing - your credit file. This is a log of what you owe and what, when, and how you pay. It lets them judge how reliably you have managed your finances in the past.
This is the basic idea of the credit score: a numerical representation of your history borrowing and repaying. See – credit scores aren’t so complicated.
What is the Minimum Credit Score for a Mortgage in the UK?
To get access to the best deals and interest rates on the market, you’ll usually need a ‘good’ credit score – which depends on the credit rating agency you use.
You’ll typically need a 530 on Equifax, 700 on Experian, or a 605 on TransUnion.
If you’re above these scores, you’re on your way to the best deals but credit scores below these typically involve some risk-adjustment, so you may be subject to higher interest rates and less favourable mortgage deals.
But good credit doesn’t necessarily guarantee the deal you want. Other areas of your circumstances such as your income, deposit and employment may affect the terms you’re offered too.
These are at the lender’s discretion. A good credit score is only one part of your mortgage application.
These minimum credit scores are for most lenders. The financial market is broad and there’s often low-credit lending schemes out there, with the credit minimums fluctuating over time.
However, the credit ratings outlined above are the typical ‘low watermark’ for mortgages. While other options exist, they may have higher interest rates.
How Credit Scores are Calculated
Credit scores are a shorthand that banks use to determine your trustworthiness.
The number of your credit score outlines your percentage of repaid debts, at what amounts, and quantifies your outgoings versus your income.
Credit scores’ calculations depend on the credit rating agency you’re using, and it’s not always clear how they are calculated exactly.
The most important thing you can do is pay your debts on time, in full, which will increase your credit score over time.
Minimum Credit Scores for Each CRA
It’s important to look at the various categories of credit score according to each credit rating agency (CRA).
Understanding where you fall in each rating can help you understand your mortgaging position in more depth.
Equifax Credit Score
Equifax runs their credit rating scale from 0 to 1000, and 671 is where they start the “good” category.
This is the area where you are likely to start getting favourable mortgage deals – with lower interest rates and better fixed-rate packages.
Within this category, there’s a significant amount of variance. The “great” range is from 811 to 1000.
This is the target for anyone looking to lend, as it opens up access to the best deals – which could save you tens or hundreds of thousands of pounds.
Expedia Credit Score
Experian uses a scale of 0 to 999 for credit scores. The good range begins high, however, at around 800.
This is an impressive credit score and will take some time to build up. The scale that Experian uses is compressed, however – there’s a lot of work to do at the top.
This means going from 800 to 900 is going to be more challenging than the previous increments.
TransUnion Credit Score
TransUnion uses a narrower range of credit scores between 0 and 710. A good credit score starts at 600, with anything below this line making you less likely to get a favourable mortgage deal.
As with other CRAs, this is a compressed scale where the lower values are easier to climb than the upper ones. The difference between 600-700 is greater than 400-500, for example.
Does Having Better Credit Mean Better Deals?
Remember that whatever your current credit score, more is better. There’s no such thing as being too trustworthy, especially when it comes to other people’s money!
Increasing your credit score should be an ongoing process, especially if you intend to adjust your mortgage contract later, remortgage, or simply improve your long-term spending and borrowing habits.
Strengthening your credit rating will only be beneficial as the years go by.
Think about it like this: if you wish you’d put more effort into your credit score years ago now that you’re buying, you'll probably feel like that again in 10 years.
Thinking about your credit score when you don't immediately need it can ensure that it's ready when you do.
What Credit Rating Affects
Mortgage providers offset their short- and medium-term risk against the long-term benefit of a greater total payoff.
This means that one or multiple other factors on your mortgage agreement depend on your credit rating.
Amount You Can Borrow
The amount of money you can borrow is dependent on both your credit score and your income. Income is the main factor for determining your borrowing amount.
However, expect to fall into a specific category of lower-cap lenders if your credit score is particularly underwhelming.
Lenders can be more flexible, and you only improve your savings when you’re proactive with credit.
Interest Rates
The main way that lenders increase the total amount you pay – when you have a poor credit rating – is their interest rate.
While interest rates are adjusted based on the Bank of England base rate, lenders retain discretion to move within that range.
They typically increase the rates for more complex mortgage applications to ensure they’re making money on higher risk borrowing.
This is one of the most common and long-term-expensive adjustments that can be made to your mortgage payment.
For perspective, the difference between a 5% and 7% interest rate on a ‘normal’ mortgage – a £200,000 loan for 30 years – is a typical difference of nearly £100,000 (386,000 vs 479,000).
This is a small difference in % points that changes everything.
Loan Terms
Your credit rating affects the rates available to you, your access to fixed and variable rate mortgages, and whether you can have a capped rate.
If you have adverse credit, the financial products on offer to you may not be as varied and may be less favourable.
If you have good credit, you may have access to more favourable deals and a wider variety of loan terms.
Deposit
The impact of your credit score extends to your deposit; some lenders will require a larger amount of upfront capital to secure better terms.
This is a common way to offset risk and cover the potential downsides that banks and other providers face when you have a lower credit score.
This can sting if you’ve found the deposit saving process particularly difficult.
The addition of upfront capital may be used to reduce the total payment, however, so be sure to carefully calculate your full-mortgage repayment amount.
Consider that time spent on building a larger deposit can also be spent improving your credit rating.
Conclusion
While there’s no minimum credit score for a mortgage in the UK, your credit rating is an important part of the process.
It may determine the quality of deal you’re going to get, with good credit opening up better options on almost every aspect of lending.
Working on your credit profile isn’t quick, but it can be worthwhile.
If you’re looking for the best deal, you also need to consider which mortgage provider has the right option for you.
That’s why we built the Fair Mortgage comparisons, so you can see the financial services on the market and make the right choice.
Take a look at our mortgage comparison tables and compare them with your own credit score and capital deposit!
Mortgage Credit Score FAQ
What Is A Good Credit Score for a Mortgage?
A good credit score for a mortgage depends on your rating agency but is typically around:
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450 for Equifax
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700 for Experian
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600 for TransUnion
If your credit is below these standards, you’re likely to find yourself locked out of the best deals on the market.
Alternatively, a credit score at or above these numbers tends to mean more trust from your lender, lower interest rates and, in some circumstances, could allow you to borrow more.
What’s The Minimum Credit Score for a Mortgage?
There’s no direct minimum credit score for a mortgage – it’s at the discretion of each lender.
Most banks and providers will only offer their best products to those with good credit, which tend to be the top ¼ of each CRA’s credit scoring system.
While most providers have schemes for lower credit scores, these end up paying more in the long run or require more upfront capital. This can leave you with less flexibility, as a trade-off.
How Can You Improve Your Credit Score for a Mortgage?
You improve your credit score by repaying your debts on time – such as a personal loan, credit card, or financed purchase.
However, improving your credit score can take a long time and is the result of consistency and reliability.
It’s not complicated, but it does take time and having appropriate credit payments on your record. It’s worth noting that credit inexperience can be as much of a burden as irregular or poor credit.
Can You Get a Mortgage with a Credit Score of 500?
It is unlikely that you will be offered a favourable mortgage with a credit score of 500.
This is a very low score that would typically be seen on an individual with poor credit history or very little credit experience. These both reduce bank trust in a lender.