Remortgage With a Low Credit Score

Understanding Credit Scores and How They Affect Remortgaging

Your credit score is a numerical representation of your creditworthiness, calculated by credit reference agencies based on the information in your credit file. In the UK, the three main credit reference agencies each have their own scoring systems, which means your score can vary depending on which agency you check with.

How credit scoring works in the UK

Each of the three main agencies uses a different scale:

• Experian — Scores range from 0 to 999. A score of 721-880 is considered fair, and anything below 720 is considered poor.
• Equifax — Scores range from 0 to 1000. A score of 380-419 is considered fair, and anything below 379 is considered poor.
• TransUnion — Scores range from 0 to 710. A score of 566-603 is considered fair, and anything below 565 is considered poor.

It is important to understand that lenders do not necessarily use these exact scores when making decisions. Most lenders have their own internal scoring systems that take data from your credit file and combine it with other factors such as your income, employment status, existing commitments, and the amount of equity in your property.

What causes a low credit score

Many factors can contribute to a low credit score, including:

• Late or missed payments — Even a single missed payment can reduce your score, and the impact increases with more missed payments.
• High credit utilisation — Using a large proportion of your available credit (for example, having credit cards close to their limits) negatively affects your score.
• County court judgements and defaults — These serious adverse credit markers have a significant negative impact on your score.
• Too many credit applications — Multiple hard searches in a short period can lower your score, as they suggest you may be struggling financially.
• Lack of credit history — Paradoxically, having no credit history can result in a low score because there is insufficient data to assess you positively.
• Not being on the electoral roll — This is a surprisingly common cause of lower scores that is easy to fix.
• Financial associations — Being financially linked to someone with poor credit can affect your own score.

Understanding what is driving your low score is the first step towards improving it and increasing your remortgage options.

Can You Remortgage With a Low Credit Score?

Yes, you can remortgage with a low credit score. The UK mortgage market includes a wide spectrum of lenders, from those who require excellent credit scores to those who specialise in helping borrowers with imperfect credit. The key is finding the right lender for your circumstances.

High street lenders

Most high street banks and building societies have minimum credit score requirements, and applications that fall below their thresholds are typically automatically declined. However, the exact thresholds vary between lenders, and some are more lenient than others. Your score might be too low for one bank but perfectly acceptable to another.

Specialist lenders

The specialist lending market has grown considerably in the UK. These lenders focus on serving borrowers who do not fit the rigid criteria of high street banks. Many specialist lenders use manual underwriting, which means a person reviews your application rather than an algorithm. This allows them to consider the context behind your credit score and make more nuanced decisions.

Building societies

Many building societies, particularly smaller regional ones, take a more personal approach to mortgage lending. They may be more willing to look beyond your credit score and consider your broader financial situation, including how you have managed your existing mortgage.

Your existing lender

Do not overlook the option of a product transfer with your current lender. Because they already hold your mortgage, they have first-hand evidence of your payment behaviour. Many lenders will offer existing customers a new product without requiring a full credit reassessment, which can be advantageous if your score has dropped since you took out your original mortgage.

The interest rates available to you with a low credit score will generally be higher than those offered to borrowers with excellent credit. However, they can still represent a significant saving compared to your lender's standard variable rate, which is often substantially more expensive than any fixed or tracker product.

Practical Steps to Improve Your Credit Score

Improving your credit score before applying to remortgage can expand your options and help you access better rates. While some improvements take time, others can have an almost immediate effect.

Quick wins that can boost your score fast

Some actions can improve your credit score within just a few weeks:

• Register on the electoral roll — If you are not already registered, do this immediately. It is one of the simplest and most effective ways to boost your score.
• Correct errors on your credit report — Check your reports with all three agencies and dispute any inaccuracies. Common errors include addresses you have never lived at, accounts you do not recognise, or incorrect payment statuses.
• Remove outdated financial associations — If you are financially linked to an ex-partner or former flatmate with poor credit, request that the link is removed from your file. The credit reference agencies have processes for this.
• Reduce credit card balances — If your credit cards are close to their limits, paying them down can quickly improve your utilisation ratio and boost your score.

Medium-term improvements (one to six months)

These steps take a little longer but can make a meaningful difference:

• Set up direct debits for all bills — Consistent, on-time payments are one of the biggest positive factors in your credit score. Automating your payments eliminates the risk of accidental missed payments.
• Reduce your overall credit utilisation — Aim to use no more than 25-30% of your available credit across all your credit cards combined. If you have a card with a 1,000 pound limit, try to keep the balance below 300 pounds.
• Avoid new credit applications — Each hard search slightly lowers your score. In the months leading up to your remortgage, avoid applying for any new credit unless absolutely necessary.
• Pay more than the minimum — On any debts, try to pay more than the minimum required payment. This reduces your balances faster and demonstrates to lenders that you can manage your finances well.

Longer-term strategies (six months and beyond)

For more substantial improvements:

• Build a positive payment track record — Six to twelve months of perfect payment behaviour can significantly improve your score and demonstrate to lenders that you have turned a corner financially.
• Close unused credit accounts strategically — While having available credit can be positive, too many open accounts can be viewed negatively. Close any accounts you no longer use, but keep your oldest accounts open as they contribute to the length of your credit history.
• Pay off outstanding debts — Systematically reducing and eliminating your debts will improve both your credit score and your affordability when applying for a remortgage.

Be patient with the process. Credit scores do not change overnight, but consistent positive behaviour will be rewarded over time.

How Lenders Look Beyond Your Credit Score

While your credit score is important, it is not the only factor that lenders consider when assessing a remortgage application. Understanding what else lenders look at can help you present the strongest possible case, even if your score is lower than ideal.

Affordability assessment

All FCA-regulated lenders must carry out an affordability assessment to ensure you can comfortably manage the mortgage payments. This involves looking at your income, regular expenditure, and existing financial commitments. A strong affordability position can help offset a lower credit score, as it demonstrates that you have the financial capacity to manage the mortgage.

Equity in your property

The amount of equity in your property is a critical factor. More equity means less risk for the lender, because if they needed to repossess and sell the property, they would be more likely to recover the full loan amount. If you have substantial equity, some lenders may be more flexible on credit score requirements.

Employment stability

Lenders view long-term, stable employment positively. Being in the same job or industry for several years demonstrates reliability and reduces the lender's concern about income disruption. If you have recently changed jobs, having passed your probation period is usually sufficient for most lenders.

Existing mortgage payment history

Your track record of paying your current mortgage is one of the most relevant pieces of evidence a lender can consider. If you have never missed a mortgage payment, this demonstrates real-world reliability that a credit score alone might not capture.

The context behind your credit issues

If your low credit score is the result of a specific, temporary event such as job loss, illness, or relationship breakdown, many specialist lenders will take this into account. Being able to explain what happened and demonstrate that your financial situation has since stabilised can make a meaningful difference to how your application is assessed.

Deposit or additional security

In some cases, offering additional security or making a lump sum payment to reduce your mortgage balance before applying can improve your chances. This reduces the lender's risk and may help compensate for a lower credit score.

A good broker will help you understand which factors work in your favour and will present these prominently in your application to give you the best chance of approval.

Choosing the Right Remortgage Product With a Low Credit Score

When your credit score limits your options, choosing the right type of mortgage product becomes particularly important. Here is what you need to consider when comparing the deals available to you.

Fixed rate mortgages

A fixed rate mortgage locks in your interest rate for a set period, typically two, three, or five years. This gives you certainty about your monthly payments, which can be particularly valuable if your finances are tight. While the fixed rates available to borrowers with low credit scores are higher than the best deals on the market, they still provide the security of knowing exactly what you will pay each month.

Variable rate mortgages

Some specialist lenders offer tracker or discount variable rate products. These rates move in line with the Bank of England base rate or the lender's standard variable rate. Variable rates can be lower initially than fixed rates, but they carry the risk of increasing if interest rates rise. If you can tolerate some uncertainty in your payments, a variable rate might offer lower initial costs.

Comparing the total cost

When evaluating different products, always consider the total cost over the deal period, not just the headline interest rate. Factor in:

• Arrangement fees — Some products have high upfront fees that can offset a lower interest rate. Calculate whether it is cheaper to pay a fee for a lower rate or accept a higher rate with no fee.
• Early repayment charges — Understand what penalties apply if you want to switch or pay off the mortgage early during the deal period.
• Valuation and legal fees — Some lenders offer free valuations and legal work for remortgages, which can save you several hundred pounds.
• The rate after the deal period — Check what standard variable rate you will revert to when your deal ends, and plan to remortgage again before that happens.

Deal length considerations

If your credit score is likely to improve significantly over the next one to two years, you might prefer a shorter fixed rate period. This allows you to remortgage sooner onto a better deal once your credit has improved. However, shorter deals may have slightly higher rates, so weigh this against the potential savings from switching sooner.

Your broker can model different scenarios and help you understand the financial implications of each option, ensuring you choose the product that best suits your needs and circumstances.

Planning Ahead: Your Credit Score and Future Remortgages

If you are remortgaging with a low credit score today, it is worth thinking about your next remortgage from the outset. With the right approach, you can systematically improve your credit position so that each time you remortgage, you have access to better deals.

Set a credit improvement plan

Work out what specific factors are dragging your score down and create a plan to address them. If it is high credit card balances, set up a repayment plan. If it is a lack of credit history, open a credit builder card and use it responsibly. Having a clear plan with specific goals will help you stay focused and motivated.

Monitor your progress regularly

Check your credit score with all three agencies at least quarterly. Many services offer free monthly updates and alerts. Tracking your progress helps you see the impact of your efforts and identify any issues early. It also helps you know when you have improved enough to access better mortgage products.

Time your next remortgage strategically

If your credit score is improving steadily, timing your next remortgage for when you cross into a higher score bracket could save you significant money. Your broker can advise on what score thresholds different lenders use and help you plan the optimal time to switch.

Keep your mortgage payments impeccable

Above all else, ensure your mortgage payments are made on time, every time. A perfect mortgage payment record over two to three years is one of the strongest signals of creditworthiness. Even if other aspects of your credit file are imperfect, a clean mortgage payment history carries enormous weight with lenders.

Avoid taking on unnecessary credit

While building a positive credit history is important, avoid taking on more credit than you need. Each new account and application affects your score, and excessive borrowing can undermine the improvements you have made elsewhere. Be strategic about the credit you take on and ensure it serves a purpose in building your profile.

Review your financial associations

If you share finances with someone who has a poor credit record, their behaviour can affect your score. Regularly review your financial associations on your credit file and remove any links that are no longer relevant. This is particularly important after a separation or divorce.

By taking a proactive approach to managing your credit, you can steadily improve your score and your mortgage options over time. What feels like a constrained situation today can evolve into a much more positive picture within just a few years.