Last updated on October 18th, 2022 at 05:40 am
Owning a house is ranked the highest on the ambition list of any individual. Having a house is not only a status symbol but also provides a sense of security. But buying a house doesn’t come cheap, and its cost can wobble any person’s financial health for many years.
However, the cost of housing never affected its need and demand. On the contrary, there is a huge demand for houses which is making its price reach a peak.
Here a mortgage offers great financial help in making the buying process easy. Many lenders are ready to give 100% mortgages for bad credit.
A home mortgage is the biggest ticket for many people. It helps in building the buying process easy. Buying a house is a costly attempt where without a loan, it is tough to move forward.
But the process of taking out a loan is not easy these days. The level of credit checks and financial gauging results in failure to procure a mortgage. This is fair on the lender’s part as they don’t want any default on loan.
Some of them are even more particular about the stability of the income, existing debts, and credit scores. Among the most important criteria for getting a loan is the credit score of an applicant.
What is a credit score? How does it play a vital role in getting financed on favorable terms?
The lender gauges your credit score whenever you opt for a loan or credit card. But what is it? A credit score ranges from 300 to 900. It tells whether you were good with your repayments in the past or ongoing debts. It includes the number and the total amount of your aggregate borrowings to date.
The amount you utilize in your credit card limit also impacts your credit ratings. You should use only 30 to 40% of the spending limit mentioned on the credit card to uplift your credit score. Also, having multiple cards or outstanding debts can lower your credit score.
A good score helps you in getting a mortgage at lower interest and other favorable terms. You can easily save money on the interest charged if you keep up your scores.
On the other hand, if your credit ratings have gone down, getting approval on a loan request is tough. Even if you get your loan approval, you will not get it on the manageable terms.
What breaks your credit ratings? How can you uplift it for better loan terms?
Following are the major components of your life that make or break your credit score.
- History of payment
Your payment history comprises all the records of paying debts of credit cards, installment loans (a student or car loan), retail accounts, or other mortgages.
It also includes reports of bankruptcies, suits, liens, foreclosures, and pay attachments. If you skip or miss the payment of any of the above repayments, then you substantially hurt your credit score. But if you are prompt in paying the minimum amounts, then it mends the score.
- Owed debts
This indicates what numbers of debts are piled up in your life and how well you are handling each one of them. If you have large debts outstanding, then it negatively impacts your score.
You should not exceed 30% of the credit card limit. Paying all the high liability dues on time will help you manage your debts. This will also improve your credit history.
- Length of credit
The length of your credit means how long you have been using credit and how long you have it. If you have a good record of handling your credit, then it is considered healthy for your ratings.
Lenders will perceive you as a less risky borrower. You augment your chances of getting approval on a mortgage if you have been regular with repayments of your debts and followed a good repayment pattern. Then you will accelerate the process of obtaining a loan.
- Nature of credit
This includes all the sorts of credit that you owe till now, including loans, credit cards, mortgages, and retail accounts.
If you have used your credit card to make a big purchase beyond your means, then it substantially hurts your credit ratings.
- Enquires
If you are desperate to get a quick house mortgage, you applied with multiple lenders. It puts your credit score at risk. You lower your credit score, even more each time you send a credit enquiry.
A lender seeks such borrowing risk, and they often reject such applications.
- Numerous debt
If you already have taken or planning to take debts when you already have piles of them, then it hits your score very hard. Applying for numerous credit cards at once can also break your score.
To conclude
An impressive credit score helps you meet your financial needs by tackling all the challenges with a loan, in particular when you consider of purchasing a house.
A house is one of the costliest possessions for anyone. The price of housing is soaring sky-high. Here without a financial backup, most individuals cannot make this purchase happen in their lifetime.
Among all the aspects, your credit score plays a significant role in deciding the future of your loan request. It shows your creditworthiness and indicates your past and current repayment behavior.
A mortgage taken on favorable terms will help you save money on the interest. Also, the associated repayments that will start right after procuring the loan will be comfortable each month. You can also roughly calculate the repayments with the Barclays mortgage calculator in the UK to know your affordability as well.
Purchasing a house is a significant financial decision. Therefore, make sure you don’t burden yourself even more if you have a bad credit rating.
You need to manage your credit well if you want to purchase a house. If you don’t have a good credit history, aim to improve it and apply for a mortgage. The higher the credit score, the better is your financial soundness.
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