Last Updated on 25th September 2020
Credit checks are carried out almost every time you apply for any type of finance, including a mortgage. Your credit file gives creditors an insight into how you’ve previously managed credit. That’s why applying for a mortgage with no credit history can be difficult.
Getting a mortgage with no credit history is possible, but it’s far from easy. You may wonder why lenders would decline a person that’s never needed credit. Well, the reason is quite simple. If you have no credit history, lenders aren’t able to assess your financial conduct when borrowing. Lenders like to see whether a borrower can manage credit and therefore prefer applicants to have credit history.
You may have credit history that you’re unaware of. No matter how small your credit file is, any amount of history can help. If you have a thorough credit file, lenders are able to check your financial conduct and whether or not you’ll be high-risk. Having little or no credit history can leave lenders with doubts, as they simply don’t know what your borrowing conduct will be like.
If you’re unsure of whether your credit file is adequate for a mortgage, you can make an enquiry with an advisor.
Applying for a mortgage with no credit
If you have no credit history then getting a mortgage will be extremely difficult. That said, it’s rare for a person to have no credit history whatsoever.
Credit history can come from:
- Phone contracts
- Credit cards
- Bank accounts
- Being registered on the electoral roll
- Direct debit payments
- Utility bills
If you have had at least two lines of credit, such as a phone contract and a registered bank account, then having a credit card isn’t absolutely necessary. Having two lines of credit should give you enough credit history to get a mortgage. That being said, every lender has its own criteria, so it’s always worth checking with an advisor before applying for a mortgage.
If you do approach a lender before consulting an advisor, you may be declined. Any application for credit, including a mortgage will leave a footprint on your credit file. If you’ve just started building your credit history, the last thing you’d want is a failed application.
Build a credit file before applying for a mortgage
If you have a ‘thin’ credit file, building it up may seem like a timely process. In reality, this isn’t the case. Having credit for six months is usually enough to strengthen your credit file to qualify for a mortgage. Building a credit file doesn’t mean you need to take on heaps of debt to simply repay it.
A simple way to build your credit score is to open a credit card. Rather than use your debit card for purchases, you can use your credit card. Be sure to stay within your budget and use credit responsibly. It’s advised to repay credit cards in full with a monthly direct debit. By doing this, you’ll never be at risk of late payments, which can damage your credit score.
If you do take a credit card, be sure that your total debt is always below 45% of your annual income. This is because when lenders assess your mortgage application, having too much outstanding debt will go against you. Even if you have savings, not every lender will consider your savings as a safety net so do be careful.
Utility bills and mobile phone contracts can also build up your credit history. It’s common for younger people to have little or no credit history, especially if you live with parents. You may be able to place a utility bill in your name to help strengthen your credit file.
Having a thin credit file or zero credit score is similar to having bad credit. A healthy credit file can make mortgage approval a lot easier. Remember, credit is just one area of your assessment. Our specialist advisors are experienced in mortgages under difficult circumstances. If you wish to apply for a mortgage, please make an enquiry below.