Improving Credit Score
Why Is My Credit Score Important When Getting A Home Loan
If you are hoping to get a home loan for a property that you like, then you'll probably learn that your credit score plays a big role in your chances of being accepted - and furthermore, the amount of interest that you will need to pay. But why is your credit score so important when getting a home loan?
Read on to find out why a good score can benefit you and why a bad credit score can affect your chances of getting approved for the home loan of your dreams.
What is a credit score?
To understand why your credit score it important, you need to know what it is. Your credit report has the details of all your old credit cards, loans, debts, mortgages and more for each of your accounts that have been active in the last 6 years.
The better your history with your finances, the better your credit score will be - and this is very important when it comes to getting a home loan.
Why is it important?
So, you know what your credit score is, but do you know what makes it so important to lenders? Well, if you want them to lend you money, they need to know that you will be likely to pay them back. And how can they see how likely you are to pay them it back? By checking your credit score.
It's one of the best ways for a lender to see how trustworthy you are - and if they see that you have a bad financial history, they won’t want to risk investing in you as a borrower and have the potential to lose out on their gamble.
How can it affect my interest rate?
You may not be rejected for having a bad credit score, though. If you have a bad credit score, the lender may instead put a higher interest rate on the loan, which in turn effects the amount you can borrow.
Although it may seem odd that they make you pay more when there is proof that you have trouble paying money, it makes a lot of sense. You see, when you have a higher interest rate, they get the money for the property back quicker, which is safer for them than giving you a low interest rate and risking losing out on more of their money.
It can make them more confident that they'll get their money back, even if you have a bad credit score.