How Far Do Mortgage Lenders Look At Credit History | The Mortgage Hut (2024)

Rather read? This guide covers:

• What appears on your credit report
• How long financial blips and mishaps remain on your record
• What else lenders look at when assessing your application
• Moving forward so you can plan for a mortgage
• Where you can go for advice

How many years do lenders look back when checking credit history?

The last 6 years of your financial history is likely to be assessed when a lender pulls up your credit report. That means that when you apply for a credit card, car finance or a mortgage, the lender can see the last time you defaulted on a finance payment, how many overdrafts you have and who with, how long you’ve lived at your current address and much more

It might sound creepy but your financial history is a big factor for lenders to consider when deciding if you meet their eligibility criteria and crucially, if you have good affordability for the loan amount you’re applying for

Why do lenders look at credit history for mortgage applications?

The financial risk you pose to the lender is determined by how responsible you’ve been in the past with borrowing and repaying. Your credit report is just one of the ways a lender can build a picture of how good of a borrower you have been, and could be for them. A mortgage is potentially a large sum of money, in fact, there’s an average mortgage debt of £137,934 per household!

Therefore, a bank or lender with an appetite for lower risk, wants applicants that are more likely to repay their mortgage as per the terms of the agreement i.e. someone who’ll repay their £700 a month mortgage, on the agreed date for the rest of the mortgage term which might span between 5 - 40 years.

Loan applications that have occurred within a short space of time, for example, can suggest to some lenders that you’ve experienced periods of financial desperation i.e. you’ve needed or wanted access to lots of credit quickly.

This isn’t the best way to persuade lenders that you're a safe borrower and while having a higher credit limit can sometimes help, multiple applications and maxing out your available credit while only making minimum repayments, or none at all, might not be the way forward if you want to get approved for a mortgage

What appears on a credit report?

• Your credit score, often ranked, poor, fair, good or excellent
• How much credit you have access to
• How much credit you’ve borrowed
• The lenders you’ve borrowed with
• The amount of credit applications you’ve made
• Your current and previous addresses from the past 6 years
• Whether you’ve registered to vote
• Hard searches carried out on your account
• Late or missed payments to creditors i.e. buy-now-pay-later schemes, credit card companies and car finance agreements
• Mortgage arrears for your current or previous agreement if within the last six years
• CCJs (County Court Judgement)
• IVAs (Individual Voluntary Arrangements)
• Bankruptcy

The people that you’re financially linked with can also appear on your credit history, especially in instances of joint bank accounts or utility accounts.

If you or someone you have been or are currently financially linked with has a history of money mismanagement or even a low credit score, this could impact your ability to find a lender

Will bad credit on my report stop me from getting approved?

Be reassured that your credit history isn’t the only factor that can affect a mortgage lender’s decision and even with bad credit, you may be able to find a lender with criteria you meet

It’s all about finding the right lender for your situation and with help from a mortgage broker, that can be a lot quicker because they can filter out the options that are irrelevant and highlight the ones that offer you a viable and affordable solution.

How long does bad credit stay on my credit report?

Different credit issues range in severity but usually, bad credit issues remain against your name for up to 6 years

If the credit incident is severe, like bankruptcy, it may take additional time on top of that to build your credit score back up and this can be done through careful money management, borrowing sensibly if affordable for your circ*mstances, repaying money owed on time and settling debt

How many years of good credit do I need to get a mortgage?

A good track record of steady income, low debt and a history of repaying financial obligations, indicates that you are a trustworthy borrower, so the longer you maintain or improve your credit history, the better.

There isn’t a set amount of years that you’ll need a good credit score because mortgage lenders each have their own criteria. Therefore, there isn’t a one size fits all answer for this and your own circ*mstances will determine your eligibility for a mortgage

How can a mortgage credit check impact your credit score?

This will depend on whether the mortgage lender carrying out the credit check is doing a soft credit check search or a hard credit check searc

A soft credit check is usually carried out by lenders at the initial stage of enquiring about a mortgage or loan and doesn’t affect your credit score. The lender will be able to see your credit score, key information like your name and address and details about which lines of credit you have open or are in debt with.

A hard credit check can absolutely leave a footprint on your credit report and a creditor or lender should tell you before they do so

What else do mortgage lenders look at to assess a mortgage application?

• Regularity of income
• Source of income
• Any income from benefits, pensions, investments or annuities
• Source of deposit
• Amount of your deposit
• How close you are to retirement
• The type of mortgage you want
• The amount of the mortgage
• The length of the agreement
• The interest rate charged on the mortgage
• Whether the interest rate is fixed or variable
• The type of property you want

Worried you’ll get rejected for a mortgage because of credit history?

Here’s what you can do next:

Check your reports

There are four main credit reference agencies (CRAs) in the UK that each provide credit reports including:

• Experian
• Clearscore
• Equifax
• Checkmyfile

The information on each report might be different because some CRAs get their data from different sources, while others are updated more regularly. This can work in your favour when mortgage lenders refer to their chosen CRA to check your credit history so while one may have a record for a missed mobile phone payment, another might not display it

Keep up to date with what’s on your reports and correct any mistakes. Be sure to watch out for fraud too. So many people check their credit reports and to their shock, someone has applied for credit in their name with their details.

You can appeal incidents like this with the creditor i.e. Klarna, Visa or Mastercard and while this can take time, if the information is wrong, you’ll want to remove it from your file so it doesn’t reduce your choice of mortgage lenders.

Make steps to improve your credit score

• Repay any financial obligations you have on time and if you can affordably do so, overpay so you’re not making the bare minimum, monthly repayment
• Prove where you live. Register on the electoral roll at your current address to help lenders confirm your identity.
• Don’t max out all of your available credit. Criteria varies but some lenders rule out lending to borrowers that have exceeded 50% of their maximum available credit.
• Make use of services like Experian Boost, which links your current account to your credit report so that financial data from your everyday banking can help lenders get a broader perspective of your situation.

Get organised

To compare mortgage deals you’ll need to have the most up to date and accurate information available for a broker (if you ask for help) and then a lender, who will review any documents and information to make their decision and process the application. You’ll need:

• Proof of ID (passport or driver’s licence
• Proof of address
• Details of your employment or income if you’re self-employed
• Up to six months of bank statements
• Bank and credit cards statements

Get a broker

They can:

• Help you access a free credit report
• Give you tips on how to improve your affordability for a mortgage
• Compare lots of lenders from across the UK to find the best deal
• Calculate how much you can borrow
• Check your eligibility for mortgage products so you know which lenders are more likely to approve you
• Proof read and manage your application to avoid mistakes or typos that can cause delays
• Chase up any parties involved in the process, if needed, so you don’t have to.

Clear, simple, honest advice is what we’re all about. Your credit history is just one of the many factors that lenders look at so while it’s good to make improvements, try not to get bogged down in boosting your score because you might be in a position to either make an application now, or make some other changes to appeal to more lenders.

Even if you’ve been rejected for a mortgage because of information on your credit history, know that we’ve helped hundreds of people get the finance they need.

Call, message or meet your appointed expert at a place convenient for you, for an appointment.

FAQs

Should I give it some time before applying for a mortgage?

Recent bad credit issues can be treated as more severe by lots of lenders but an additional 6-12 months of good money management could be the change needed for a future lender to agree to approve a mortgage. That won’t always be the case and there are lenders that will approve a mortgage for an applicant with certain credit issues, if the borrower can meet the other eligibility requirements

My credit history is poor, should I wait to apply for a mortgage?

Interest rates can be higher because of the additional risk that lenders take on when lending to someone with a less than perfect credit history so if you are in a hurry to apply, compare your options with a broker before signing on the dotted line. They’ll know where to look for the best bad credit mortgage deals and can help you avoid wading through the options that aren’t worth your time.

What if I’ve never borrowed before?

If you have little to no credit history, that can also be a hurdle when you apply for a mortgage or other forms of credit like a car finance agreement. That’s because lenders like to see as much information about your financial history as possible.

The six year period that they can review needs to show careful money management, so things like regular and timely credit card repayments can help to build a picture for lenders to assess

You might want to speak to a financial advisor before making a decision about applying for credit, as they can let you know what the most affordable route is, if any, for your current situation

How long does a credit check take for a mortgage?

A few minutes is all it takes for a company, employer, lender or you, to check your credit score.