How to Improve Your Credit Score Before Applying for a Mortgage

A good credit score is essential when applying for a mortgage. It not only increases your chances of approval but also helps secure better interest rates and terms. Improving your credit score can seem daunting, but with a strategic approach, it’s entirely achievable. Here’s a guide on how to enhance your credit score before applying for a mortgage.

Understanding Credit Scores

In the UK, credit scores are typically provided by three main credit reference agencies: Experian, Equifax, and TransUnion. Your credit score is a numerical representation of your creditworthiness, based on your credit history. Here’s what constitutes a good credit score with these agencies:

• Experian: A score of 881-960 is considered good, and 961-999 is excellent.
• Equifax: A score of 420-465 is good, and 466-700 is excellent.
• TransUnion: A score of 604-627 is good, and 628-710 is excellent.

Steps to Improve Your Credit Score

1. Check Your Credit Report RegularlyRegularly checking your credit report helps you stay informed about your credit status and identify any errors or fraudulent activities. You can request a free copy of your credit report from Experian, Equifax, and TransUnion. Correct any inaccuracies by contacting the credit reference agencies.
2. Pay Your Bills on TimePayment history is a significant factor in determining your credit score. Late payments can negatively impact your score. Set up automatic payments or reminders to ensure you pay all your bills, including credit cards, utilities, and loan repayments, on time.
3. Reduce Your Credit Utilisation RatioYour credit utilisation ratio is the amount of credit you’re using compared to your total credit limit. Aim to keep this ratio below 30%. For instance, if you have a total credit limit of £10,000, try to keep your outstanding balance below £3,000.
4. Avoid Applying for New Credit FrequentlyEach time you apply for new credit, it results in a hard inquiry on your credit report, which can lower your score temporarily. Limit new credit applications, especially in the months leading up to your mortgage application.
5. Maintain Older Credit AccountsThe length of your credit history impacts your score. Keep older accounts open to show a long and stable credit history. Closing old accounts can shorten your credit history and lower your score.
6. Use a Credit Builder CardIf you have a limited credit history or a low score, consider using a credit builder card. These cards typically have lower credit limits and higher interest rates, but they can help demonstrate responsible credit use over time. Ensure you pay off the balance in full each month to avoid high-interest charges.
7. Register on the Electoral RollBeing registered to vote at your current address can boost your credit score. Lenders use the electoral roll to verify your identity and address. You can register online through the UK government’s website.
8. Manage Debt ResponsiblyFocus on paying down existing debts rather than moving balances between accounts. Consistently reducing your debt shows lenders that you can manage and repay your obligations.
9. Consider a Joint Mortgage CarefullyIf you’re applying for a joint mortgage, your partner’s credit score will also be considered. Ensure both of your credit scores are in good shape before applying.
10. Use Experian Boost

Experian offers a service called Experian Boost, which allows you to include additional financial information, such as utility and council tax payments, in your credit report. This can potentially improve your credit score instantly.

Statistics

• Average Credit Score: According to Experian, the average UK credit score was 759 in 2023, indicating a generally good credit health across the population.
• Mortgage Approval Rates: Data from UK Finance indicates that around 77% of mortgage applications were approved in the first quarter of 2024, with higher approval rates for applicants with good to excellent credit scores​ (FCA)​​ (Bank of England)​​ (UK Finance)​.
• Interest Rates: The average interest rate for a standard mortgage in early 2024 was around 4.5%, with applicants having higher credit scores often securing rates as low as 3.5%​ (Bank of England)​​ (UK Finance)​.

Conclusion

Improving your credit score is a crucial step in preparing for a mortgage application. By following these steps and maintaining good financial habits, you can enhance your creditworthiness and secure more favourable mortgage terms. At Rose Blythe Mortgage Solutions, we’re here to guide you through the mortgage process and help you achieve your homeownership dreams. Contact us today to learn more about how we can assist you.