Can I get a mortgage with a fair credit score?
A poor credit rating can be a major barrier to getting a mortgage, but there are lenders prepared to help those whose applications may be refused elsewhere. Our guide explains more.
Key takeaways
Lenders scrutinise your financial history, including credit reports, County Court Judgments (CCJs), and bankruptcy proceedings, before deciding whether to offer you a mortgage
Lenders also consider pay slips, bank statements, and other debts to decide whether you’ll be able to afford repayments
Bad credit mortgages also known as ‘sub-prime’ or ‘adverse credit’ mortgages, come with higher interest rates and larger deposit requirements
A fair credit score can still secure a mortgage, but you are unlikely to receive the best rates
It might not seem fair, but even having a big deposit in place and a decent salary isn’t enough to guarantee you a mortgage. If you have a bad credit score, then your application is likely to be refused.
Can you get a mortgage with a bad credit score?
The journey to homeownership can be fraught with challenges, especially when it comes to convincing lenders that you're a safe bet.
Banks and building societies exercise extreme caution, meticulously combing through applicants' financial histories.
They're particularly vigilant about past defaults on debt payments, which can be a red flag when deciding whether to extend a mortgage offer.
When lenders evaluate your application, they consider several key factors:
What lenders consider for a mortgage
Your credit report
This document is a comprehensive record of your credit history and behaviour.
County Court Judgments (CCJs)
These indicate whether you've had any legal rulings against you for unpaid debts.
Any bankruptcy proceedings
Filing for bankruptcy is a significant event that will undoubtedly impact your creditworthiness.
If your financial history includes any of the above issues, securing a mortgage can become a steep uphill battle. It's not just about whether you'll qualify for mortgage deals; it's also about the terms of those deals.
Even if your financial mishaps occurred years ago, they could still lead to higher interest rates on any loans you're offered.
What mortgages can you get with a bad credit score?
For those with a less-than-stellar credit history, there are specific types of products known as 'sub-prime' or 'adverse credit' mortgages. These are tailored for individuals with poor credit records.
Functionally, they're similar to standard mortgages, but they come with higher interest rates and bigger deposit requirements, which can range from 25% to 30%.
These terms reflect the increased risk that lenders take on when dealing with applicants who have a history of financial instability.
Is a mortgage possible with a fair credit score?
A fair credit score is a middle ground, signalling to lenders that you've generally managed your finances well but have had some past issues with payments.
While lenders may still view you as a risk, a fair credit score doesn't mean an automatic mortgage rejection. With a fair credit score, you might not get the most competitive rates, but you can still find mortgage lenders who will offer you a deal.
Why should you check your credit history?
Before you dive into the mortgage application process, it's wise to take a step back and review your credit report. You can view your credit report for free with MoneySuperMarket.
It can help you spot any potential issues that could hinder your chances of approval. Sometimes, even simple oversights, such as not being registered on the electoral roll or neglecting to close unused credit card accounts, can drag down your credit rating.
What else do mortgage lenders need to know?
Beyond your credit history, mortgage lenders will dig into other aspects of your financial life. They'll request documentation like pay slips or, for self-employed individuals, three years of accounts and bank statements.
They'll also want to know about other debts you may have, including personal loans or credit card balances.
It's advantageous to reduce these debts before applying for a mortgage, as it demonstrates your commitment to financial responsibility. Remember, even late payments on utility bills can leave a blemish on your credit history.
How does a good credit score benefit you?
Achieving a good credit rating can be your golden ticket to a smooth mortgage approval process.
With a solid credit score, you unlock the door to more favourable interest rates, the possibility of borrowing larger sums, and a broader selection of mortgage products.
Essentially, a good credit score can save you money and provide more options when it comes to choosing your home.
Getting a mortgage with an excellent credit score versus a bad credit score
Your credit score significantly influences the mortgage deals available to you. Here's a comparison illustrating how an excellent versus a poor credit score could impact your mortgage options:
Mortgage rates on a property priced at £300,000
1. Excellent credit score
Deposit: 10% (£30,000)
Loan-to-Value (LTV): 90%
Interest rate: Approximately 3.99% (fixed for 2 years)
Monthly repayments: Around £1,267
Key takeaways: Lenders are more likely to offer favourable terms, including lower interest rates and higher LTV ratios. This means you can secure a mortgage with a smaller deposit and benefit from lower monthly repayments.
2. Poor credit score
Deposit: 20% (£60,000)
Loan-to-Value (LTV): 80%
Interest rate: Approximately 6.84% (fixed for 2 years)
Monthly repayments: Around £1,896
Key takeaways: Lenders may require a larger deposit to mitigate their risk, leading to a lower LTV ratio. Additionally, higher interest rates increase your monthly repayments, making the mortgage more expensive over time.
Please note that these figures are illustrative and actual rates may vary based on individual circumstances and market conditions.
How can you improve your credit score?
A good credit score can help you get better deals on loans, mortgages, and credit cards. Here are some quick tips to help you:
Ways to improve your credit score
Check your credit report
Look for errors and correct any mistakes that could be bringing your score down.
Pay your bills on time
Late or missed payments can have a big impact on your score.
Keep your credit utilisation low
Try not to use more than 30% of your available credit limit.
Avoid multiple credit applications
Too many applications in a short time can make lenders think you’re struggling financially.
Register on the electoral roll
This helps lenders verify your identity and boosts your creditworthiness.
Consider a credit builder card
If you have little or no credithistory, using one responsibly can help improve your score.
Manage old accounts wisely
Closing unused accounts may help, but keeping long-standing ones open can also show a strong credit history.
For more tips, our guide on how to improve your credit score can help.
Personal Finance Expert
Our expert says...
“For most of us, a mortgage is likely to be the biggest creditapplication we ever make – and because the home loan will run for years, getting the best deal possible is critical. This is why it’s so important to make sure your credit score is as high as it can be before applying. The good news? There are straightforward steps you can take to improve your credit rating. So, don’t delay, get started today.”
Other helpful guides
For more information about managing your credit score, have a look at more of our useful guides, including...
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Just tell us a bit about yourself, your financial situation, and your plans. We’ll help you scour the market in search of the mortgage deal that is right for your pockets and requirements. Then, feel free to use our mortgage calculators to find out how much each deal would cost you overall.
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Author
Ashton Berkhauer
General Manager • Commercial
Currently the General Manager for Home Services and Mortgages, Ashton observes the markets and, along with his team, strives to get the best possible solutions for consumers. The products within his...
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Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
