MortgageGym, the online mortgage adviser, has today released figures which show that those with poor credit scores could be paying thousands of pounds more per year on their mortgages. Over the lifetime of a mortgage, this could add up to tens of thousands of pounds of potential savings.
MortgageGym has reviewed credit reports from among 29,000 of the company's most recent website visitors. The results show a direct correlation between mortgage applicants' salaries and credit scores, with its first-time buyer customers and low income applicants having the worst credit scores. 23% of MortgageGym's first-time buyer applicants have salaries in the £20k-£30k range but also fall into the second lowest credit score bracket, with an average score of 686 out of 999, putting them firmly in Experian's poor credit score category1 and leaving them facing higher mortgage interest rates2. This is in stark contrast to the company's highest earning remortgage customers, who have an average credit score of 884.
The report highlights that first-time buyers and lower income households should pay close attention to their credit scores, especially before applying for a new mortgage. MortgageGym's analysis shows that applicants with salaries of under £20k have the worst credit scores of all its website visitors, proving that the UK's lowest income households face the highest costs of borrowing.
The cost of having a poor credit score can be very high for mortgage customers. A first-time buyer today with a good credit score who has a £150,000 mortgage on a 25-year repayment could pay as little as £608.40 per month with a 1.62% two year fixed rate from Halifax. The same customer with impaired credit could pay £947.29 per month for a 5.79% two year fixed rate from specialist lender - over £4,000 extra per year. 39% of MortgageGym's sample of mortgage buyers have a credit score of 720 or below, showing that many of the UK's 11 million customers could get a cheaper deal by improving their credit score.
MortgageGym's proven tips to boost your credit score and understand your mortgage eligibility
Start by checking your credit score and mortgage eligibility for free. You can do this by using MortgageGym's free eligibility checker and see your free Experian Credit Score
Prove where you live. Register on the electoral roll at your current address – you can do this even if you're in shared accommodation or living at home with your parents.
Build your credit history. Having little or no credit history can make it difficult for companies to assess you, and your credit score may be lower as a result. This is a common problem for young people and people who are new to the country.
Make payments reliably. Paying your accounts on time and in full each month is a good way to show lenders you're a reliable borrower, and capable of handling credit responsibly. Old, well-managed accounts will usually improve your score – although be sure to read about the potential impact of unused credit cards.
Keep your credit utilisation low. Your credit utilisation is the percentage you use of your credit limit. For example, if you have a limit of £2,000 and you've used £1,000 of that, your credit utilisation is 50%. Usually, a lower percentage will be seen positively by companies, and will increase your score as a result. If possible, try and keep your credit utilisation at 25%.
John Ingram, Co-founder, MortgageGym
“There is a pressing need for first time buyers and lower income households to build a good credit score to make sure they can access the cheapest mortgage rates. The higher your credit score, the better your chances of being accepted for the best rates. Consumers deserve the transparency and clarity that MortgageGym has brought to the UK mortgage market.”
MortgageGym's free-to-use technology allows UK homebuyers to instantly compare their credit file and personal details with eligibility criteria across mortgage lenders and then fulfil their mortgage online, with support and advice from real brokers. The company's full website launched early last year and has had over 150,000 customers.