The Impact of Your Credit Rating on a Mortgage

Credit rating, also known as the credit score, is a number that measures how good you are in paying your debts. When you are looking for a mortgage, a mortgage lender will want to make sure you'll be able to pay it back. The only way it can do that is to look at your record. Having a less-than-ideal credit score won't necessarily disqualify you from getting a mortgage, but it will ensure that you will get higher interest rates and monthly payments, and you wouldn't be able to qualify for the better terms and conditions. In short, the higher your credit score is, the better your mortgage terms will be.

Understanding Your Credit Rating

As mentioned above, credit rating is the numerical value that expresses your ability to pay your debts on time. It is complied based on your history of timely payments, length of your credit history, what types of credit you used, how often anybody inquired about your credit and your credit utilization - the ratio of the amount of credit you use over your current credit limit. The credit score ranges between 200 and 850. The higher the credit score, the better your credit history is. The credit scores are compiled by three credit reporting agencies - Equifax, Experian, and TransUnion.  Once the credit scores are compiled, these agencies will sell them to the lenders. While each agency uses the same data, they use slightly different methodologies, which lead to slightly different results. The lenders can either buy your credit score from one credit reporting agency or try to purchase them from all three.

Mortgage and Credit Rating

Different mortgage lenders have different credit mortgage requirements, but the basic principles remain the same throughout. If you credit rating is below 620, you will not be able to get a mortgage. If somebody offers you a mortgage with that kind of credit rating, it will mostly like be a scam or too expensive to be worth your time and money. If your credit rating is 740 or higher, you will be able to get a decent mortgage with low interest rates and good terms and conditions.

If your credit score is between 620 and 740, the situation gets more complicated. Your credit score is too high to disqualify you from a mortgage loan altogether, but too low for the lender to trust you will a mortgage that has the best terms. it is up to each lender to decide how much risk it is willing to take with you and customize the loan terms accordingly.  If you want to get a good mortgage, you will have to look at multiple lenders and see which one offers a loan that has decent terms and fits your credit score.

Improving Your Credit Rating

If you can't qualify for a decent mortgage loan with your current credit score, there are several steps you can take to improve it. First and foremost, you have to make an effort to pay all your bills on time. At the same time, you should work on repaying all of your outstanding debts - the debts you haven't repaid in a timely manner. If you can keep it up for more than a year, you will demonstrate that you are committed to living up to your debt obligations, and your credit score will be affected accordingly. Be sure to leave enough for your day-to-day expenses. Otherwise, you will wind up having to borrow money, which will only make your debts worse.

blog comments powered by Disqus