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What is the best credit score to apply for a mortgage and how to improve the score?

Getting a good deal on your mortgage is heavily dependent on your credit rating. We take a look at how to boost your score and enjoy the best rates.

How to improve your credit score for a mortgage

This week average mortgage rates in the United States have fallen to their lowest levels since September, giving some relief for borrowers who have face higher-than-expected repayments recently.

With interest rates expected to remain lower than the late-2022 peak, this could be a good time for prospective buyers to take the plunge. But to get a good deal on a mortgage agreement it is crucial that your credit score shows that you are responsible with your finances.

Credit scores are rated from 0 to 999, with higher scores meaning that you are considered a more reliable client. The more points you score, the better chance you have of being accepted for a mortgage at an attractive rate.

Credit ratings agency Experian classify five rough categories of credit scores:

Excellent: 800+

Very Good: 740 - 799

Good: 670 - 739

Fair: 580 - 669

Poor: 579 and below

If you place in the top category of credit scores then you stand a good chance of getting the best deals on your mortgage with lower-than-average interest rates. However the further down the rankings you find yourself there is more chance of being declined for a mortgage, or only accepted if you agree to pay high interest rates.

How to improve your credit score

Considering how great an impact they can have on your financial prospects, the calculations behind credit scores can be frustratingly vague. There is no list of actions that will guarantee you a top credit score, but there are a few key principles to remember that will show prospective lenders that you will be able to fulfil your financial obligations.

Review credit reports – Before you start working on improving your credit score, check that you have no outstanding debts that need to be paid. Request a credit report from one of the major national reporting agencies to see if you have any old balances that are negatively affecting your score.

Always pay on time – Whether it’s a gym membership or financing on a car, showing that you are always able to manage your finances is key. Avoid late payments and banks will feel more confident lending to you.

Limit your credit utilization rate – Sometimes known as a credit utilization ratio, this is the sum of all your balance divided by the sum of your credit limits. Essentially it measures the proportion of your borrowing potential that is already in use. Ideally, you want this figure to be no higher than 30%.

Maintain longstanding accounts – It may seem counter-intuitive but keeping old accounts open, provided you have paid off any debts, is a good way to boost your score. Ratings agencies often check for the length of your credit history when calculating a score.