How Your Credit Score Can Affect a Mortgage Application
How Your Credit Score Can Affect a Mortgage Application
If you’re applying for a new mortgage, there are many factors you need to consider – among them, how your credit score may affect the amount you’re able to borrow. Many people are unaware of just how severely their credit score can impact their financial decisions, but when you’re dealing with such a large loan as a mortgage, a few points on your credit record can make a substantial difference.
Bumping up your credit score is therefore a key activity if you’re thinking of applying for a mortgage. Fortunately, there are many easy ways to do this – from keeping as many accounts open as possible to ensuring you make all payments on time.
Your credit report can be accessed by lenders any time you apply for a loan, but the good news is that you’re now able to access it yourself too, usually for a small fee. By making regular checks to the status of your credit report, you can ensure that no negative activity is being reported which you feel may be harming your chances, giving you time to sort out such details with the relevant parties prior to taking out a new loan.
There are several systems currently being used to calculate credit scores, the best known being the FICO system. If you possess a high score between 760 and 850, you should benefit from improved loans with lower interest rates than borrowers with scores of 620 or lower, which can indicate to potential lenders that you are at higher risk of being unable to pay back loans when required.
The minimum credit score you will usually require to be considered for a loan is 500 to 520, and a difference of several hundred points can equate to thousands of pounds extra in higher interest rates, even when you compare mortgages to find the best deals available. It therefore pays to learn how you can avoid amassing negative credit and start building a positive credit score.
Even if you already pay your bills on time every month, you may be missing out on the best interest rates if you only hold a limited numbers of accounts. It may seem counterintuitive, but by holding a larger number of accounts – whether for credit cards, savings or other forms of borrowing – you will be demonstrating to potential lenders that you are capable of keeping a broad portfolio of finances in check.
The author of this article is a part of a digital blogging team who work with brands like Confused.com. The content contained in this article is for information purposes only and should not be used to make any financial decisions.
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Category: Mortgage application
