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.