Buying a house is widely known as being one of the most stressful things you can do and one of the first steps, securing a mortgage, definitely can add to this stress. With so many hoops to jump through to be able to secure a mortgage, being rejected due to a minor credit score issue would be horrible.
This is why it’s great you’re actively searching for whether a mortgage application affects your credit score so you can avoid this common pitfall. In this post I’ll run through the various ways a mortgage application could affect your credit score and what to look out for when applying.
Does a Mortgage Application Affect Your Credit Score?
In short, yes a full mortgage application does affect your credit score. How much it affects your credit score will depend on a number of factors including how strong your credit score is currently and what other financial products you currently have in place or have applied for recently.
There are also other factors to consider, which I’ll go into more detail below.
Do Multiple Mortgage Applications Hurt Credit Score?
Yes multiple mortgage applications do have a negative impact on your credit score as from a lenders point of view applying for multiple financial products in a short space of time looks risky.
However, as long as you do them in quick succession the credit bureaus usually combine these mortgage applications into one financial transaction. This is usually multiple mortgage applications within a few weeks to a month.
So make sure to try and keep these mortgage applications to a minimum, ideally one full mortgage application if possible and do the rest through soft credit checks until you’ve found the product you need. I’ll explain why to try and aim for a soft credit check application below, although they’re usually in the form of a mortgage in principle.
It is also worth pointing out that each credit bureau has a slightly different way of calculating your score as they’re based on custom complex algorithms. This means what is acceptable for one might not be for another so make sure to try to mimimise any impact if possible.
Does a Soft Credit Check Affect Mortgage Application?
Soft credit checks from any company do not affect your mortgage application as only you can see them. This effectively means they don’t exist in the eyes of the lender. Only hard credit checks are visible so they do have an affect on your mortgage application and credit score.
Does a Declined Mortgage Affect Credit Score?
Having a mortgage application declined won’t in itself hurt your credit score as your credit report will only indicate to the lenders that you applied for a mortgage. However, if this does happen it could lead you to need to make more applications, each one requiring a hard search on your credit report and potentially having a negative impact on your credit score.
Make sure to read the section above where I run through what happens if you make multiple mortgage applications. If you are ever in doubt, make sure to speak to a professional mortgage advisor that can help you in your specific situation.
Does Applying for a Mortgage in Principle Affect Your Credit Score?
Whether a mortgage in principle will affect your credit score will depend on whether the lender conducts a soft or a hard credit search. Many lenders now offer a soft credit check in order to give you a mortgage in principle which does not affect your credit score.
When looking for a mortgage in principle or talking with your mortgage advisor, make sure to check whether they’re going to run a soft credit check or a hard credit check. If they say they need to run a hard credit check, make sure you’re aware this will have an impact on your credit score.
Will Missed Credit Card Payments Affect Mortgage Application?
Yes a missed credit card payment will affect your mortgage application as it will have an impact on your credit score. How much impact will depend on a number of factors, mainly how strong you current credit score is and how many other missed payments you have.
The way the credit bureaus manage missed payments is all about the percentage of successful payments. Each successful payment is added together, usually over a span of six years then a percentage is calculated and this is used to determine level of risk.
This is one of the main benefits to having multiple financial products, such as a few credit cards and a mortgage. For example, if you just had one credit card and had that for one year and missed one payment, you would have a (11/12) 92% successful payment score. That then compared to someone that has had two credit cards for six years and misses one payment has a (143/144) 99% successful payment score.
Having a 99% successful payment payment percentage most likely won’t have a massive affect your mortgage application, however any lower than 98% it could start to raise red flags. Unfortunately the credit bureaus don’t release their exact methods of calculating their scores.
The ideal scenario is that you never have a missed payment, so just make sure you pay any minimum payments. However if you do miss a payment the amount it will actually impact you will heavily depend on your current credit history.
Will Applying for a Credit Card Affect My Mortgage Application?
Yes applying for a credit card will affect your mortgage application, however as long as you only apply for one it shouldn’t have too much of an impact. One of the main risks with applying for a new credit card is that it changes your spending habits. If you spend more money each month the amount the lender may be willing to let you borrow could reduce or only offer more expensive products.
Also in order to get a new credit card, it usually requires a hard credit search. The general information around credit scores recommends you should have a maximum of two to maintain a good or excellent credit score. Applying for a mortgage will also give you one hard search so you could stay within this threshold, however if you have any other hard searches, such as going with a new car insurance provider
Depending on when you’re looking to get your mortgage, if it’s imminently it may be best waiting until after your mortgage has gone through to be on the safe side.
Excellent Credit Score But Refused Mortgage
Unfortunately in some cases even with an excellent credit score you can be refused a mortgage. The lender has a strict set of criteria to help manage their risk which is made up of a number of factors.
It could be something relatively trivial why you were rejected, or it could be something more. I’ve included a breakdown of the main factors considered by lenders below to help.
To avoid having another mortgage refused and potentially risk impacting your credit score further, seeking the help of a professional mortgage advisor will definitely be the way to go. They can review your individual situation and try and work out exactly why you were rejected so you can aim to fix any issues before to apply again.
Factors That Impact Mortgage Approval
Whilst your credit score definitely plays a large part in whether you will get a mortgage approved, it’s not the only factor to consider. Below are some of the other factors that lenders will review when deciding if they are going to approve or reject your application.
- Credit Score
- Length of time in current job
- Current debts
- If you’re self-employed (more variable income, higher risk)
- Size of your deposit (higher deposit and lower loan to value ratio is less risk for lender)
How to Improve Your Credit Score
For a full breakdown of exactly how your credit score works and different strategies you can put in place to improve your score, make sure to read this detailed guide I’ve written on how to get an excellent credit score.
Knowing how your score is calculated is the first step to working out what you need to do to improve it. Some factors have a lot more weighting than others, meaning for people on lower or mid-level score, there could be some quick fixes that you could implement and see improvements fast.
How Much Does a Mortgage Affect Your Credit Score?
Once you’ve gone through the process and have the keys to your new property, a mortgage can have quite a significant benefit to your credit score. By paying your mortgage on time each month you are demonstrating to the credit bureaus that you can manage a large loan without missing any payments which will in turn improve your trustworthiness and as a result your score will go up.
Overall, a mortgage application will affect your credit score although as long as you’re aware what to look out for it should have a minimal impact. Once you’ve actually secured your mortgage and make the first few payments, any negative impact will quickly be offset and start being a benefit to your credit report.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
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