The Importance of Credit Score in Home Loan Applications

The Importance of Credit Score in Home Loan Applications

The higher your credit score, the more likely the lender will provide you with financial repayment, and the more likely you will be approved for low-interest loans!  

The credit score clearly indicates the repayment potential of loan borrower. This report gives the personal financial aspects of the borrower and gives an idea of whether or not they can pay the loan installments.  

A good credit score is vital to various aspects of financial life. Loans and credit cards finance most of the applications you have; however, your credit score will determine whether your loan will be approved. This can save you thousands of dollars in the long run.   

What actually is a credit score?  

Surely, you have heard or read the word “scoring” referring to a credit or loan application, but what is scoring? Well, in summary, it is what banks use to approve or deny credits. Credit score helps lenders make decisions based on the risk on loan repayments.    

Behind each loan granted or denied there is a valuation process in which the lender studies the client’s profile, that is, their ability to return the money that he/she is going to lend them. This process involves the assessment of numerous parameters that make the customer a better or worse payer. It determines, therefore, the risk of default that the bank will assume when granting that loan. 

  What does it take into account?  

Scoring is a system that relies on statistics to try to determinime the borrower’s payment capacity based on personal and financial data and, very importantly, based on their payment history with a profile similar to them. The fixed scoring is based on these common points:  

  • Income level 
  • Assets they own – real estate, vehicles 
  • Link with the bank and contracted financial products 
  • Job stability: seniority, type of contract, etc.  
  • Profession 
  • The amount borrowed in relation to monthly income 
  • Loan and payment history 
  • Age, Marital status and children 

 Based on their score, the entity can grant the loan, deny it or, in some cases, request more payment guarantees and increase the access requirements for that loan. This is where the negotiation of the loan comes in. If the bank is not very clear about client’s ability to return the amount of money they are requesting, it can demand that they present a guarantor who will respond for them in the event of non-payment. In addition, in profiles with a not too good score, the interests associated with the loan are usually higher (remember, the more interests, the more risk).  

  How is Credit Score Calculated?

It is essential to keep track of your credit account at least twice a year in case you would need a home loan in future. Scores usually range from zero to 1200. A value greater than 750 points is counted as a good credit score. If your score is lower than 500, it won’t be easy to find a mortgage lender who will approve a loan for you. If approved, your payments will be larger, because most of these loans come with higher interest rates.   

To increase and improve your credit score, you may want to seriously consider taking out a small loan that you can pay off quickly. Moreover, paying the bills on time also helps to improve credit score. Plus, you can save a lot of money by offering a higher down payment on a home, so you don’t need to borrow much money.  

Staying out of debt as much as possible will help you make wise financial decisions and you will be able to live comfortably within your means. Monitoring your spending habits will help you later in your home loan application when a good credit score is needed on your side. In general, home loans are chosen as one of the most common loans; however, as mentioned before, you need a good credit score to help you avoid covering a loan with high-interest rates. To help you with your credit rating, we, as the best mortgage brokers, help you get a good overall score.    

  How To Get a Good Credit Score?

Obtaining a good score is not something that is achieved overnight. Beyond the employment and income you have, in order to improve your scoring score, it is essential to be rigorous with payments and demonstrate a fair client history.  

It goes without saying that if you are included in a file of defaulters, your scoring will score very low and it will be complicated for you to access a loan.  

Finally, it is essential to underline that your score in the scoring system will not automatically grant or deny you credit, but it will be a weighting factor that the bank will weigh when it comes to giving you the money you need. 

All you need is to keep track of your daily expenses, have a good amount for the down payment, and pay your bills on time.  

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