Credit ratings are often heralded as one of the most important things you need to improve in order to borrow money, especially for a mortgage.
But did you know that you don’t actually have a credit “rating”? That number you might check each month isn’t really a metric that lenders see when deciding whether you’re creditworthy.
So, if your credit “rating” doesn’t actually exist, why do you always hear about them?
Credit reference agencies are giving you a rough estimate of your creditability
The credit rating you might receive from a credit reference agency, such as Experian, is just a rough estimate to help lenders when assessing whether to lend to you.
This figure takes your overall lending into account, looking at any credit cards you have, how much you’ve borrowed, and any loans or similar borrowing you’ve taken out.
But no matter what that number is, it doesn’t necessarily define your ability to borrow.
Each lender uses their own credit scoring system to assess you
Individually, lenders will carry out their own credit check on you – the rating you see from a credit reference agency is simply a guide for how lenders might see you.
Your credit rating is essentially an estimate of your creditworthiness, based on your past borrowing and your ability to do so; if you’ve defaulted or missed payments on a loan, your credit rating will likely be lower.
Meanwhile, a lender’s credit score is a more rigid set of criteria with a threshold that you have to pass in order for them to consider lending to you.
A lender’s credit scoring will use some of the same factors as the credit reference agency, such as your current borrowing and how much available credit you have. But their check will be more comprehensive.
Lenders may take external criteria into account, such as who they want to lend to – for example, they may be targeting first-time buyers at one time of year, but not another. They may therefore soften the credit score for first-time buyers if they are looking to attract that type of business.
Crucially, a lender will take your income into account, while the credit reference agencies only consider your ability to manage your borrowing. This is important as, even if you’ve missed payments in the past, a higher income could offset that in a lender’s eyes.
As each lender performs their own check, lenders might treat you differently depending on the criteria they value, too.
For example, one lender might find it appealing that you have multiple credit cards, as you have more available credit. Meanwhile, another may see this as evidence that you’re short on cash.
This means that even if one lender rejects you, another might be willing to help you.
Credit scoring isn’t the only criteria that matters for mortgages
Just because they technically don’t exist, it doesn’t mean you shouldn’t try to keep the best possible rating; having good credit is still a plus in the eyes of a lender.
But you might find that there are other factors that impact your ability to get a mortgage more than just your credit rating.
Your age, your earnings, how much you’re currently borrowing, and how much you want to borrow can all impact on how likely you are to be accepted.
That’s why it’s useful to work with a mortgage broker. At Edinburgh Mortgage Advice, we’re experts in helping people find the right mortgage for them.
We can take your personal circumstances into account, looking at a range of factors to work out what sort of deal you can expect. Then we’ll scour the market to find the right deal for you, including deals that might only be available via a broker.
We may even be able to speak to a lender directly on your behalf, helping you get a deal when you were unable to on your own.
Need help finding the right mortgage?
If you’d like help finding a mortgage deal that works for you, please speak to us at Edinburgh Mortgage Advice.
Email [email protected] or call 0131 339 2281 to speak to us.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.