The process of buying my first house was a whirlwind.
I’d spend a few minutes checking Rightmove at least once a week–despite having no intention of buying a house within the near future. But I found one I loved, and convinced my boyfriend to come to a viewing later that week. (Again, with no intention of buying it. I just like being nosey.)
Two days after viewing the house, we reserved it. Less than two months after that, we moved in.
The only problem? I was 21 years old with no credit score. I’d been taught to save for anything I want, and pay for it upfront in-full. The only bill I paid monthly was my phone bill. Everything else–including my car, insurance, etc–was paid upfront.
I’d never had a credit, and I didn’t have long between reserving the house and actually applying for the mortgage. I had less than two months to building my credit score essentially from scratch.
Here’s how I did it (and got my first mortgage as a self-employed person at age 21.)
How your credit score affects your mortgage chances
Before we dive in with the actual tips, let’s quickly touch on why your credit score is so important when applying for mortgages.
Your credit score tells a lender how trustworthy you are. A high credit score means you’ve got a proven history of paying back any credit–something a mortgage lender will want to know before giving you one.
After all, why would any lender want to give you a massive loan over 20+ years if they’re unsure you’re actually going to repay it?
Every mortgage lender uses your credit score to determine:
- If you’re eligible for a mortgage
- The interest rate they’ll give you
Here’s a great table by Experian that explains this using their credit scoring system:
I can’t remember the exact credit score I had before I tried to improve it, but I was hovering somewhere in the “fair” category. However, I’d never had any credit, so it was unlikely for any mortgage lender to give me a huge lump sum because they wouldn’t know if I could pay it back.
Here’s how I improved my credit score to get a mortgage
I managed to get my credit score from “Fair” to “Excellent.”
Here’s how I did that in the short time I had before applying for a mortgage (that eventually got accepted with a great, fixed interest rate.)
In a rush? Click these links to jump to a specific section:
- Join the electoral rolls
- Get a credit card for small purchases
- Leave space between available and taken credit
- Make sure your credit file is accurate
- Set bills to be paid automatically
- Avoid too many credit checks before applying
1. Join the electoral roll 🗞
This one is self-explanatory, and always first on any list of tips to improve your credit score.
Rightly so. It’s the most basic, easiest way to boost your credit score, and simply involves joining the electoral roll–a list of people registered to vote in public elections.
Joining the electoral roll improves your credit score because it allows lenders to confirm that your details are correct. It shows that important information that lenders need–including your name and address–is accurate.
The bottom line: It’s proof that you are who you say you are.
Registering to vote takes a few minutes, and you can do it online. Not only will it help boost your credit score, but you’ll also be ready to vote in the next election. Do it once, and you’ll never have to do it again.
2. Get a credit card for small purchases 💳
As I mentioned earlier, I never had a credit card before trying to boost my credit score.
I’d pay everything in-full upfront, and was conditioned to think “credit cards = bad.” That’s not true.
Having a credit card shows that you’re responsible enough to have debt that you pay off. (Remember: This only works if you pay it off in-full, every month.) Without a credit card, you can’t prove that. You don’t have any experience borrowing and repaying money, and mortgage lenders can’t be sure that you’re likely to make the monthly payments.
I got a basic credit card with a £500 limit. I used it to buy small things, such as:
I was just putting some small expenses onto my credit card that I’d be paying each month, anyway.
But most importantly: I didn’t use my credit card to buy anything I wouldn’t in-full. I didn’t spend more just because I could.
I didn’t incur any interest charges because I was paying the balance off in-full at the end of the month (sometimes before.) This started to build my credit score because I was taking on debt, and paying it off on a regular basis.
I didn’t need to take out anything “extra” to do it; just changing the card I used to pay for what I was already buying.
3. Leave space between your available and used credit 💸
Maxing out your credit card won’t do any favours for your credit score. By not maxing out your total available credit, and leaving a gap between your available and used credit, you can prove that you’re not taking more than you need.
This is called “credit utilisation”–the percentage of credit you have access to, compared to the amount you’ve taken.
In my case, my the limit on my credit card was £500, but the maximum I’d use was £150 each month. I had £350 in available, unused credit–which showed I was responsible enough to have access to credit, but not max it out.
Here’s how Equifax explain the impact of your credit utilisation rate on your credit score:
- “If you use between 50% – 75% of your credit limit, this will show up as an ‘amber flag’ on your credit report, meaning it may have an effect on your credit score.
- If you are using more than 75% of your credit limit, this will be a ‘red flag’ on your credit report, and it’s likely to have a negative effect on your credit score.”
So, what happens if you’ve already maxed out your credit card?
Apply to your credit card provider and see if they can increase your credit limit. Even a change of £200 can improve your credit utilisation percentage–so long as you don’t spend the extra amount you have available.
4. Make sure your credit report is accurate 🖥
A credit report shows your financial history, including:
- Your name and DOB
- People linked to you (e.g. your partner, if you have a joint account)
- Your credit accounts
- Details of any house repossessions, bankruptcies and individual voluntary arrangements
- Any checks made on your credit
It’s important to comb through your credit file and check its accurate. Research has found that 38% of people find mistakes on their report when reviewing it–something that could impact your credit score over time.
For example: If you see that a credit check has been made from a company you don’t recognise, contact your lender to fix it. Someone might be using your identity to apply for credit.
If you suspect someone is using your credit information for fraud, you can also report it to Action Fraud.
5. Set bills to be paid automatically 🚖
Late or missed payments reduce your credit score because it shows you’re less likely to pay back debt on time.
So, I recommend to set-up bills to be paid on direct debit if you’re not paying them in-full.
For example: You’ve set-up your credit card to repay the minimum payments every month. You need to remember to transfer the full balance to pay it off every month in full–but you forget.
Instead, set-up automatic payments to pay-off the balance in full every month, and ditch the reminders.
You can make this easier by picking an automatic payment date for your bill shortly after being paid. For example: If you get paid on the 28th of each month, have all of your bills paid automatically on the 1st. You’ll always have the money in your bank for it.
(I even do this now with my house bills. My gas and electricity supplier sent me payment reminders via post; I manually went online to pay them. However, I switched to direct debit to take the payment automatically on the 1st of the month. This means I can’t miss a payment–and also got a discount for switching to automatic payments.)
6. Avoid too many credit checks before applying for your mortgage 🏡
We’ve touched on the fact you can use your credit report to see any checks that have been made, including:
- Soft checks: This includes checks to pre-approve you for some credit, or any views your credit file (like a new employer.) These soft checks are only visible to you; your mortgage provider won’t see them.
- Hard checks: These are more in-depth checks on your credit file used by credit card or car finance providers. They’re used in an actual credit application, so mortgage lenders can see them when deciding whether to give you one.
Your mortgage lender will also look at hard credit checks (and your entire credit report) before deciding whether to approve you for a mortgage. Too many hard credit checks in a short timeframe reduces your credit score, which makes lenders less likely to approve you.
I experienced this when buying a sofa for my new house. I wanted to continue building my credit score even after getting the mortgage, so decided to get some credit for the furniture.
However, I put this off until after I’d been approved for the mortgage because it’d show a hard check on my file.
Start building your credit score today
Even if you don’t intend on applying for a mortgage in the near-future, don’t put-off these tips to build your credit score. (Not just because I’m living proof that the right deal might come along, and you might end up viewing a home and moving in within two months.)
Building your credit score takes time–especially if you’re starting from a lower score.
It’s best to start actively building your credit score at least a year before applying for a mortgage. That way, you can convince a mortgage lender that you’re responsible enough to make the monthly repayments.