Credit score effect on Home Loan

If one wants  a home loan, the  credit history is going to be one of the most important factors in order to determine the interest rate and the  borrowing terms. It’s thus  easy to see why: When the borrower is hoping to get credit—and that includes a mortgage—the higher the  score is, the better off the borrower is  likely to be.

Several things influence the  mortgage and its interest rate, including where the home is and the type of loan which the borrower is  trying to get. But his  credit score also is a big part of it. The base credit score is a number between 300 and 850 that helps the lenders to decide whether they think that the borrower would  pay back the loans on time. (One  can also have specialized scores, with a different range, for specific lending industries such auto financing.)

The credit score however itself has several parts, including:

  • The history of on-time (or late) payments
  • The length of time the borrower has had credit
  • How much credit the borrower has available
  • The number of times the borrower has applied for credit recently

Credit Scores and Mortgage Interest Rates

Our individual credit backgrounds are thus as unique as our DNA, but for the most part, if the borrower has  got a high credit score, he’ll  probably be able to borrow at a lower interest rate than someone who doesn’t.

When the borrower is  hoping to get credit—and that includes a mortgage—the higher the score is, the better off the borrower is  likely to be.

One should also should know that while probably the best-known and the  most widely used score is the FICO Score, the credit bureaus have however created another scale a few years ago .

With a mortgage, having a lower interest rate however  matters, and not just for the short term—a lower rate means that the borrower would  pay less on the  home loan over time. And since a mortgage lasts for many years, the savings could thus be significant .

The borrower must be aware that when the borrower is  applying for a home loan, the  lender may however  recommend the borrower , thus he should not think of  applying  for any other credit. That’s thus because doing so would lead to what’s known as a “hard inquiry,” and that thus has the ability to take a few points off his  credit score.

If his score isn’t quite where he  wants  it to be today, he  can take steps to improve it, such as by reducing the amount which the borrower has borrowed relative to the  available credit and thus  making sure that the borrower is  always on time with the minimum payments. One  can also talk to a professional credit counselor. A low score won’t thus necessarily keep the borrower from getting a mortgage, but again, one  might not be able to get the better rates.

Ultimately, the borrower should just remember that his  credit score is a work in progress. It probably would change over time. But if he keeps  an eye on it, and keep it as high as he can, he’ll be happy he did so. It can thus be important when he’s  applying for a mortgage or either any other type of credit.

By | 2017-11-03T10:54:48+00:00 November 3rd, 2017|Home Loan|0 Comments

About the Author:

Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

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