If you want a mortgage, you’ll need to undergo a credit check. This guide explains the types of credit checks and factors to consider when conducting one.

What is a credit check?

A credit check is a procedure used by lenders to assess an individual’s creditworthiness and financial history. It involves reviewing information from credit reports to evaluate factors such as credit scores, payment history, outstanding debts, and past financial behaviour.

The three main credit reference agencies, also known as credit bureaus, are Equifax, Experian, and TransUnion. These agencies gather and maintain credit information, providing reports that help lenders make lending decisions.

What types of credit checks are there?

There are two main types of credit checks: soft credit checks and hard credit checks. Let’s explore what they are and when they are typically carried out, as well as the impact they have on your credit score:

Soft Credit Check

A soft credit check is a preliminary review of your credit report that does not impact your credit score. It provides a basic overview of your credit history and is usually conducted during the initial stages of the mortgage application process, such as the Agreement in Principle (AIP) or pre-qualification stage. Soft credit checks help lenders assess your creditworthiness without making a formal credit application.

Impact on Credit Score: Soft credit checks have no impact on your credit score. They are considered informational and do not leave any trace on your credit history. 

Hard Credit Check

A hard credit check is a comprehensive examination of your credit report and can have a temporary impact on your credit score. Lenders typically perform hard credit checks when processing the full mortgage application. Some lenders conduct hard credit checks at the Agreement in principle stage. Hard credit checks provide a detailed assessment of your creditworthiness and are used to make lending decisions and determine loan terms.

Impact on Credit Score: Hard credit checks can have a minor negative impact on your credit score. Each hard credit check leaves a record on your credit report, indicating that you applied for credit. While a single hard credit check may only slightly lower your score, multiple hard credit checks within a short period can have a more significant impact.

When do lenders do a credit check?

Lenders typically conduct credit checks at different stages of the mortgage application process. They often perform a credit check during the Agreement in Principle (AIP) stage or pre-qualification to assess initial eligibility. A more comprehensive credit check is then carried out during the full application stage. Some lenders may also conduct credit checks after making an offer to ensure that no additional credit has been taken before finalising the mortgage.

What are they checking for?

Lenders typically conduct a mortgage credit check to assess the borrower’s creditworthiness and determine their eligibility for a mortgage. Some key factors that lenders check for during a mortgage credit check in the UK include:

  • Credit Score: Lenders review the borrower’s credit score, which is a numerical representation of their creditworthiness based on their credit history. A higher credit score indicates lower credit risk.
  • Payment History: Lenders examine the borrower’s payment history to assess their track record of making timely payments on existing debts. Consistent, on-time payments demonstrate responsible financial behaviour.
  • Affordability Assessment: Lenders assess the borrower’s income and expenses to determine if they can comfortably afford mortgage repayments. They consider factors such as the borrower’s income, employment stability, and existing financial commitments.
  • Debt-to-Income Ratio (DTI): Lenders analyse the borrower’s DTI, comparing their monthly debt payments to their monthly income. A lower DTI ratio indicates a better ability to manage additional mortgage payments.
  • Credit History: Lenders review the borrower’s credit history to identify any past defaults, bankruptcies, or other adverse credit events. A negative credit history can impact the borrower’s creditworthiness.
  • Electoral Roll Registration: Lenders may check if the borrower is registered on the electoral roll. This helps verify their identity and address.
  • Public Records: Lenders check for any public records, such as county court judgments (CCJs) or bankruptcies, which may indicate potential financial risks.

How do I check my credit score?

To check your credit score, you can follow these steps:

  • Credit Reference Agencies: The three main credit reference agencies in the UK are Experian, Equifax, and TransUnion (formerly Callcredit). You can visit their respective websites or contact them directly to check your credit score. They often provide free trials or paid subscriptions that give you access to your credit report and score.
  • Check My File: Check My File is a credit checking service that provides data from all three major credit reference agencies—Experian, Equifax, and TransUnion. By using Check My File, you can access and review your credit report and score from all three agencies in one place.

When checking your credit score, it’s important to ensure that the information is accurate and up to date. Regularly monitoring your credit score allows you to identify any potential errors or discrepancies and take appropriate action to rectify them.

Do I need to Download a copy of my credit report?

Having a copy of your credit report is not a strict requirement for most mortgage lenders because they can access it themselves. However, obtaining a copy of your credit report can be beneficial for you and your mortgage broker. Here’s why:

  • Informed Decision-Making: Reviewing your credit report allows you to understand your credit history, including your credit score, payment history, and any outstanding debts. This information helps you assess your creditworthiness and make more informed decisions about mortgage options.
  • Identify and Address Errors: Obtaining your credit report enables you to identify any errors or discrepancies in your credit history. If you find any inaccuracies, you can take steps to rectify them before applying for a mortgage. Resolving such errors can prevent unnecessary complications during the mortgage application process.
  • Avoid Unnecessary Credit Checks: By having a clear understanding of your creditworthiness, you and your mortgage broker can avoid applying with lenders who are unlikely to accept your application. This helps minimise the number of credit checks performed, as excessive credit checks within a short period can temporarily lower your credit score.

How to improve your credit rating?

Improving your credit rating takes time and consistent effort. Here are some steps you can take to improve your credit rating:

  • Pay Bills on Time: Make sure to pay all your bills, including credit cards, loans, and utilities, on time. Late or missed payments can negatively impact your credit rating.
  • Reduce Credit Card Balances: Aim to keep your credit card balances low, ideally below 30% of your available credit limit. High credit card utilisation can lower your credit score. Paying down your balances can have a positive impact on your credit rating.
  • Build a Positive Credit History: Maintain a history of responsible credit behaviour. This includes making timely payments, keeping accounts open for a longer duration, and demonstrating responsible credit management.
  • Avoid Opening Multiple Credit Accounts: Limit the number of credit accounts you open. Applying for multiple credit accounts within a short period can raise concerns for lenders and potentially lower your credit rating.
  • Regularly Check Your Credit Report: Obtain a copy of your credit report from credit reference agencies like Experian, Equifax, or TransUnion. Review your report for any errors or discrepancies and report them for correction.
  • Close Unused Credit Accounts: If you have unused credit accounts or credit cards, consider closing them. However, be cautious of closing your oldest accounts, as they contribute to the length of your credit history.
  • Register on the Electoral Roll: Ensure you are registered on the electoral roll at your current address. This helps verify your identity and can positively impact your credit rating.
  • Avoid Excessive Credit Applications: Limit the number of credit applications you make. Each application can generate a hard credit inquiry, which can temporarily lower your credit score.

Does brokers checking your credit report affect your credit score?

In the UK, checking your own credit report does not impact your credit score. When you access your own credit report, it is considered a soft inquiry or a consumer-initiated inquiry. Soft inquiries do not have any negative effect on your credit score and are not visible to lenders or other parties who review your credit history.

When should you get an Agreement in Principle?

It is generally recommended to obtain an Agreement in Principle (AIP) before you start actively searching for properties. An AIP, also known as a Decision in Principle (DIP) or Mortgage in Principle (MIP), is a preliminary assessment by a lender of how much they may be willing to lend you based on an initial evaluation of your financial information.

Getting an AIP before property hunting helps you understand your borrowing capacity and provides you with a realistic budget. It gives you an indication of the mortgage amount you are likely to be approved for, which can guide your property search and ensure you focus on properties within your affordability range.

Having an AIP in hand when making an offer on a property also demonstrates your seriousness and preparedness as a buyer. It gives sellers and estate agents confidence that you have taken steps to secure financing and are more likely to proceed smoothly with the purchase.

How many credit checks is too many?

Ideally, it is advisable to minimise the number of credit checks, although soft checks have a lesser impact on your credit score. However, certain credit checks, such as those associated with an Agreement in Principle (AIP) or a mortgage application, may be unavoidable.

It is not uncommon for borrowers to go through multiple AIPs if they expire and need to be refreshed, or if they need to submit more than one mortgage application. This can happen if an application is declined or if they apply for a new mortgage deal when a better offer becomes available.

In such situations, it’s important to be mindful of the potential impact on your credit score, as multiple hard inquiries within a short period can temporarily lower your score. However, it’s worth noting that credit scoring models typically take into account that borrowers may shop around for the best mortgage offer, treating multiple inquiries within a certain timeframe as a single inquiry. This helps minimise the negative impact on your credit score.

Do lenders carry out credit checks after offer?

Yes, it is common for lenders to carry out credit checks after making a mortgage offer. After you have received a mortgage offer from a lender, they may conduct a final credit check to ensure that your financial circumstances have not significantly changed since the initial assessment.

The purpose of the post-offer credit check is to verify that your creditworthiness and financial situation remain satisfactory before proceeding with the finalisation of the mortgage agreement. Lenders want to ensure that you have not taken on additional debts or encountered any adverse changes that could affect your ability to repay the mortgage.

What is the minimum credit score needed to get a mortgage?

There is no set minimum credit score required to get a mortgage as credit scoring criteria can vary among lenders. Each lender has its own specific criteria and considers various factors beyond just the credit score when assessing a mortgage application.

While credit scores play an important role in the mortgage approval process, lenders also consider factors such as income, employment stability, debt-to-income ratio, down payment, and the overall financial profile of the borrower. These factors help lenders evaluate the applicant’s ability to repay the mortgage.

Can I get a mortgage with a poor credit rating?

It may be more challenging to get a mortgage with a poor credit rating, as lenders typically prefer borrowers with good credit. However, it is not impossible. Some lenders specialise in offering mortgages to individuals with poor credit, although they may require higher interest rates or larger down payments. Seeking advice from a mortgage advisor can help explore options based on your specific circumstances.