When you apply for a mortgage, the lender will look at your credit history. This is to determine if you’re a responsible borrower and if you’re likely to make your monthly payments on time. But, how many years of credit history do mortgage lenders look at exactly? We answer this common question and explore exactly what lenders look into when considering your application in this guide.

What Is Meant by Credit a History?

When you apply for a mortgage, the lender will check your credit history. This is a record of your past borrowing and payment habits, which can give the lender important insights into your financial behaviour. Generally speaking, a good credit history indicates that you have managed your finances responsibly in the past and are therefore likely to do so in the future.

On the other hand, a poor credit history may signal that you’re a higher risk borrower and may be more likely to default on a loan. As such, your credit history can have a significant impact on your ability to obtain financing. Therefore, it’s important to understand what information is included in your credit history and how it's used by lenders.

Is My Credit History Different from My Credit Score?

Your credit history isn’t the same as your credit score but they are related. When a credit score is attributed to you, it’s based on the information that makes up your credit history – e.g. whether you've consistently made payments, are on the electoral roll, etc. The credit score you obtain from looking at credit reference agencies like Experian, Equifax, etc. is a good indication of your overall credit profile health, however it’s not absolute as lenders tend to attribute their own credit score to your profile when assessing your credit history.

What Information Is Included in Credit History?

Your credit history will include a range of information from the past 6 years, including:

  • Your credit score – ranked as poor, fair, good, or excellent
  • Bank accounts and lines of credit that have been opened in the past, as well as those currently open
  • How much debt is in your name and the types of loans you have
  • Your current and past addresses for the past 6 years
  • Whether you’re registered to vote
  • Any recent credit applications and hard searches made on your account
  • Missed or late payments - for example on credit cards and car finance agreements
  • Adverse events – including defaults, CCJs, bankruptcies and IVAs

It’s important to remember that lenders will see all of this information when assessing your application. Therefore, it’s wise to take a proactive approach by monitoring your credit history and addressing any negative items before applying for a mortgage. This can help to ensure that you’re in the best possible position when it comes to securing a competitive mortgage deal.

How Far Back Do Mortgage Lenders Look at Credit History When You Apply for a Mortgage?

Most mortgage lenders will look as far back as 6 years when assessing your creditworthiness. This is because any adverse information stays on your credit report for 6 years. For example, if you have had a CCJ (County Court Judgment) or experienced bankruptcy in the past 6 years, this will be taken into consideration when assessing your mortgage application. If you had a CCJ or experienced bankruptcy over 6 years ago, this won’t appear on your credit report, however some lenders may still ask if you’ve ever had this type of bad credit when you fill out your mortgage application.

That said, most lenders will focus on your recent credit activity as this is generally seen as the most accurate indication of your current financial situation. This means that if you’ve managed your finances responsibly over the past 2 – 3 years, this will be viewed positively and can improve your chances of securing a better deal.

How Many Years of Good Credit Is Needed to Secure Mortgage?

It’s hard to say exactly how many years of good credit is needed to secure a mortgage, as this will depend on your individual circumstances, the bad credit event and the lender’s assessment criteria.

Generally though, the longer you maintain a good credit history – and the longer it’s been since an adverse credit event – the better your chances are of securing a competitive mortgage deal.

While high street lenders like HSBC, Lloyds, and Barclays require years of good to excellent credit, subprime adverse credit lenders tend to be more lenient. They often accept mortgage applications from people who have lower credit scores or shorter credit histories. However, this will usually be at higher interest rates to compensate for the increased risk. It’s also worth noting a couple of minor bad credit events won’t necessarily limit you to bad credit mortgage products from subprime lenders. Ultimately, the mortgage products available to you will depend on your overall situation, the bad credit event and the lender’s own criteria.

Should I Wait to Apply for a Mortgage if My Credit History Is Poor?

Lenders often charge higher interest rates and require a higher deposit for borrowers with poor credit scores. In some cases, waiting can make more sense, especially if you’re confident that your credit score will improve as a result of paying off existing debts.

However, if you’re looking to get a mortgage quickly, make sure you compare your options with an independent, specialist mortgage broker first. An expert broker like John Charcol will not only be able to find the best lender with the right deal for you, we’ll also manage your application and liaise with the lender on your behalf.

Whether you wait or not to apply for a mortgage with a poor credit history will depend on your individual needs and circumstances. If you do decide to go ahead now, you still have the option of remortgaging onto a better deal later down the line when your credit score has improved.

What Else Do Mortgage Lenders Look at When You Apply for a Mortgage?

While credit history certainly constitutes a large part of a mortgage lender’s assessment, there are other factors that will be considered as well, including:

  • Your income and outgoings - lenders need to ensure that you can comfortably afford the monthly payments associated with your loan. As such, they’ll assess things like your salary and other sources of income – such as benefits, investments or annuities – as well as your existing debts, living costs and any dependents. This will be done to ensure that you’re not taking on more debt than is manageable. This is typically carried out by looking at your bank statements and payslips or tax returns
  • Your deposit - the amount of money that you’ve saved for a deposit is also an important consideration when applying for a mortgage. Generally, the higher your deposit, the better your chances of securing a competitive rate with a good LTV (loan-to-value). They’ll also look into the source of your deposit to make sure it’s legitimate and you’re not required to pay it back
  • Your property - the type of property you’re looking to purchase will also influence the amount you can borrow and the terms on which it is offered. Lenders generally prefer properties that conform to certain building regulations and safety standards, and they may impose additional restrictions if the property requires more than average maintenance work. For example, non-standard construction properties and those with a flat roof are generally seen as higher risk
  • Your age - lenders consider how close you are to retirement when assessing mortgage applications. Some may also impose an age cap of 65 - 75 years. If you’re close to retirement or close to the maximum age limit, this may affect your affordability or mean that you’re more suited to a later life product

What Do Mortgage Lenders Look for on Bank Statements, and How Far Back Will They Look?

When assessing your affordability, mortgage lenders will usually look at the past 2 – 3 months of bank statements. They may also look further back, from 12 – 24 months if you’re self-employed, as this will allow them to assess your average income over a longer period.

They’ll be looking at other factors, including:

  • How much you have available in savings - this will demonstrate your ability to manage your finances and establish the source of your deposit
  • Evidence of regular income - bank statements can provide proof that you have a stable source of income and are able to meet your financial commitments
  • Expenditure - lenders will look at how much money is being spent each month to make sure you aren’t overcommitting financially
  • Unusual withdrawals, deposits, payments, or other activity in your accounts - lenders consider unusual activity as it can be a sign of fraud or money laundering
  • Any recent debts - as it can take a while for new debts and other financial obligations to appear on your credit file, lenders may look at your bank statements to ensure you haven’t taken on any new debt that hasn’t been documented yet on your credit report
  • Bounced payments and non-sufficient funds fees - lenders may also look for any evidence of missed payments or overdraft charges in your bank statements. These can be seen as a sign of financial mismanagement

These are some of the key factors that lenders take into consideration when assessing bank statements for mortgage applications. As a result, it’s important to ensure that you can provide the necessary documentation to demonstrate what the money going in and out of your accounts is for. It’s also helpful to keep your spending in check in the months leading up to a mortgage application, as this can help convey that you’re financially responsible. By understanding what lenders look for when assessing your bank statements, you can better prepare yourself for the mortgage process and ultimately increase your chances of getting approved.

How Can I Put All This Together to Improve My Mortgage Application?

The key to improving your mortgage application is to show you are a reliable and responsible borrower.

To do this, you should focus on doing the below.

Maintain or Repair Your Credit Score

If you already have a good credit history, then do your best to maintain or improve it further. If your credit score is in need of a boost, then there are various steps you can take to repair it.

Whatever your score, make sure you do the following so that it remains in good standing:

  • Register on the electoral roll - this helps lenders identify you and your previous addresses
  • Reduce your existing debts - if you have any outstanding debts, then it’s important to try and clear these before applying for a mortgage. This demonstrates that you can manage money responsibly and reduces your overall risk profile
  • Ensure your credit file is correct and up to date - you can do this by checking your credit report regularly and flagging any errors. If you spot any suspicious activity, you should also report it to the credit bureau straight away
  • Limit the number of hard credit searches against your name - every time a lender performs a hard credit check, it leaves a “footprint” on your file. Multiple footprints can be off-putting to lenders, so try and limit them by only applying for products you’re eligible for
  • Make sure you pay bills on time - late payments and defaults can damage your score and put lenders off. Make sure you set up direct debit payments for all your bills and check your bank statements regularly to ensure everything is in order
  • Demonstrate an ability to save - if you have a good track record of saving, then this will be a plus point when applying for a mortgage. Lenders want to see that you can manage your money responsibly, so having evidence of regular savings can help strengthen your application

Save for a Deposit

Making a larger deposit - including when you have bad credit - will help lower your LTV, making you a less risky borrower in the eyes of the lender and reducing the amount you’ll pay overall in interest.

Here are a few tips on saving for a mortgage deposit:

  • Create a budget - establishing how much you can afford to save each month is an important first step. Consider tracking all your outgoing and incoming money to get a better understanding of where it’s going and how you can cut back
  • Go through any existing debts - if possible, try and clear any existing debt before you start saving. This will make it easier to save up a larger deposit and put you in a better position when applying for a mortgage
  • Utilise an ISA - with some ISA schemes the Government will contribute a percentage of what you save each year to help build up your deposit – this can help you reach your deposit target goal quicker
  • Find ways to boost your income - if you have a little extra time on your hands, consider how you could add to your savings. This can be anything from taking on a little extra freelance work in your spare time to selling unwanted items online

Get Organised

When it comes to applying for a mortgage, being organised is key.

To make sure you're prepared, try the following:

  • Find out how much you can borrow - if you’re not sure what size mortgage you can afford, then it’s worth speaking to a mortgage broker. At John Charcol, we can help you understand the different products available and how much you can borrow based on your income and outgoings
  • Gather proof of income and outgoings - make sure that you have all the necessary documents to back up your income and outgoings. This could include payslips, bank statements, utility bills, or any other expenses that need to be taken into account
  • Be ready to fill out applications - there may be a lot of paperwork to fill out when applying for a mortgage, and being prepared and organised will help the process run more smoothly. Have your past addresses, employment history, and other personal information to hand so you can complete the applications easily

Be Honest and Accurate

When it comes to filling out applications, always be honest and accurate. It may be tempting to embellish certain details or omit certain adverse information, but lenders have numerous checks in place to verify your information. If any discrepancies are found, it could lead to an investigation or even a declined application.

So, even if you have CCJs or defaults, make sure you inform your broker. It’s not the end of the world if one lender won’t consider your application, there will be other options out there for most circumstances.

Apply Through an Independent, Specialist Mortgage Broker

At John Charcol, we understand that everyone’s circumstances are different and that having an adverse credit history can make finding a mortgage more challenging. That’s why our team of experienced advisers provide bespoke advice and discuss your options with you in detail. We take the time to fully understand your situation and look at the whole of the market to find the best mortgage deals available.

We also have access to lenders who only consider applications via intermediaries, which means we’ll be able to find more suitable deals for you than you’d be able to find on your own.

So, whether you have a great credit history, adverse credit or not much of a credit profile at all, it’s worth speaking to us first. We can find you the right lender with the absolute best deal for your situation. Contact us on 0330 433 2927to get started.

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