Buying your first house is an exciting life step. Getting your hands on your keys is really rewarding. But it’s pretty scary too. For most people it’s the biggest debt they will ever take on. And for some first time home buyers with a low credit score, it can feel especially daunting.
So you want to make sure you can get the best possible mortgage, with the lowest interest rates. Loqbox is here to help. Read on to find out what credit score first time home buyers need and how to start building your credit history.
What is a credit score?
Your credit score is a number that’s generated from information in your credit report. To give you an idea, some of the information included in your credit report would be:
- A record of your address history,
- Evidence of how you’ve used credit in the past (including any missed payments, defaults or CCJs),
- And any other people that you have financially linked to you through joint accounts.
To complicate things, the Credit Reference Agencies (CRAs) use different credit scoring systems. There are three main Credit Reference Agencies (CRAs) in the UK – Experian, Equifax and TransUnion. You can find out all about your credit score, including how the three CRAs score your credit history here.
Think of your credit score like a peek into your credit health – giving you an idea of how a potential lender may view you.
So it’s a good idea to aim for as high a credit score as possible with each of the three credit reference agencies. That way you’re more likely to get offered better mortgages and lower interest rates on credit cards and loans.
But know that lenders don’t only look at your credit score – they consider your whole credit file, rather than the score, to make a decision.
What credit rating do I need to buy a house?
In truth, there’s no minimum credit score you need to buy a house. That’s because there’s no universally recognised scoring system. Each lender makes a decision using their own criteria.
It also depends what type of mortgage you apply for. You could get a mortgage with no credit at all. Or you might be declined with an “excellent” credit rating!
Here’s what you need to know about how the credit rating system for first time buyers work:
- There isn’t a magic credit score which will guarantee you can qualify for a mortgage application. Instead, mortgage lenders look at various factors to decide how much they are willing to lend you and at what rate.
- They basically just want to know that you pay things back on time and that you can afford the mortgage repayments. As part of the check they look for things like defaults, bankruptcies, CCJs, if there have been any missed payments and how much credit you already have.
- Your recent incomings and outgoings may not be reflected on your credit score. But they will still have a big impact. The lender will also want to see three months worth of bank activity, your income and expenses, and how often you use your overdraft*.
Either way, they will very likely run a hard credit check using at least one of the CRAs. You can read more about hard vs soft credit checks in our blog.
What’s the average credit score for a first time home buyer?
Because there isn’t a universally recognised scoring system used by all CRAs (after all, they are three business competitors scoring in their own way) – there isn’t a specific credit score that will automatically get you accepted or declined for a mortgage. It just isn’t possible to point at any credit score and say it is the average.
As a practical guide though, if your credit scores are “good” or “excellent” across Equifax, Experian and TransUnion then you can expect to be in a better position to get a mortgage with a more favourable interest rate.
But you’d also need to *prove your affordability. This is especially true for first time home buyers as there will be no history of making mortgage repayments.
What’s the best credit score for first time home buyers?
The better your credit score, the more likely you can expect to be accepted for a mortgage. A credit history that helps indicate a “good”, “very good” or “excellent” handling of credit will also improve your chances of getting favourable interest rates.
But every CRA uses a different scoring system.
For example, an Experian score above 881 is likely to mean your credit history looks more attractive to lenders. But lenders would look for over 671 with Equifax or above 604 with TransUnion.
It’s important to remember that because lenders do a hard credit check, it stays on your credit report for six months. Whenever you apply for credit, you can expect to see a temporary drop in your credit score. So you want to be as certain as possible that you will be accepted before you make a mortgage application (to save you waiting another six months or so for it to start raising again).
You can actually check your credit score for free and without impacting it using one of these services:
ClearScore (uses Equifax data)*
Credit Club (uses Experian data)
Credit Karma (uses TransUnion data)
*If you sign up to ClearScore with this link, we’ll get a small commission. It won't cost you anything and we only recommend services we really believe in. We just wanted to let you know!
What is the lowest credit score a first time home buyer can have?
There isn’t a minimum credit score you need to achieve to get a mortgage and buy a house. It’s a common mistake that people make.
You can get a mortgage with a “bad” credit score or even without any credit history at all. Sure, there will be fewer options to choose from and the interest rates could be higher. But it is possible.
There are specialist mortgage brokers who will try and find mortgages for people with bad, or no, credit histories. But you won’t get the best deal and you might find that it’s a lot more expensive in the long term. Instead, you might find that the route of ‘patience is a virtue’ is better by building your credit score first!
We won’t lie, even once you’ve sorted out the things keeping your credit score down, it takes time to see results. Normally between six and 12 months.
But once your score starts shifting the needle towards the green end of the dial, your options get much better and you can get a lot more for your money. Especially as a first time buyer.
How can I improve my chances of getting a mortgage?
Getting your credit score as high as possible is going to really help when you are trying to buy a house for the first time. But there are other things that will help as well:
- Try and save up for as big a deposit as possible. Ideally at least 15% of the property value. Check out how you can grow your savings and build your credit score at the same time by getting started with Loqbox Save.
- See if you can reduce your spending habits for at least three months before making a mortgage application. The lender will look at three months’ bank activity so you want to make sure it’s looking tidy!
- Don’t use any payday loans. These leave bad marks all over your credit history.
- Remember to show all of your salary in your application, including overtime and bonuses.
- Improve your credit score. Find out the quickest way to do that below.
What can I do if I am declined for a mortgage because of my credit score?
First thing’s first, the mortgage you’ve been declined from is likely to have left a mark on your credit file when they ran a hard credit check. Too many hard checks over a six month period can make your credit score drop (this is very normal though, every time you apply for credit – you’ll see a dip in your score).
But because a lower credit score could mean you’re offered less favourable interest rates on a mortgage, try to take some breathing space to rebuild your score before taking a look at another lender.
The next lender may have different criteria, so you may be able to get a more favourable deal somewhere else. Otherwise, you could look at a specialist lender that can make mortgage offers to a first time home buyer with a low credit score. Or you could start building your credit score with Loqbox.
How many years of credit history do I need?
The longer you’ve been building a history of good credit use, the better. Because that lets lenders see you can be trusted to repay them responsibly over a long period of time. If you have active accounts that you are using to build a history of good credit usage, they can stay on your credit file for the rest of your life with responsible use.
But be mindful, that if you’ve had any negative marks on your credit history (from things like missed payments, defaults, or CCJs – these will stay on your file for six years). Although the good news is that the more time passes, the less important these are to lenders and your credit score.
How much deposit do I need to buy a house with a “poor” credit score?
You might find that some lenders will require up to 25% of the house value as a deposit if your credit score is “poor” or if you have no credit history at all.
As always, the bigger your deposit, the better – as you’ll have less mortgage to pay off in the long run.
How can I get my credit score higher?
Improving your credit score can have a huge impact on the mortgage that you get and even the property house you are able to buy. You might be able to borrow more than you think or even make an offer on a higher value house. And all you have to do is change a few things on your credit report and build a great credit history.
Get yourself mortgage-ready by starting to build your credit history now. With Loqbox Rent, we’ll make your rent payments count!