How will your credit affect your mortgage application?
If you are looking to buy a home, the mortgage is likely to be the most important part of the process.
You need to make sure that a mortgage lender deems you to be a suitable applicant for a significant loan that will be paid back over a lengthy period. Mortgage lenders consider many factors when they consider whether to refuse an application or to approve the application at a certain rate. One of the most important factors involved with having a mortgage application approved is the applicants credit score.
The credit score may make the difference between an application being approved or not and it may make the difference between the rate the mortgage lender is willing to provide a loan at. Therefore it is essential that your credit score is as good as it can be when you are looking to apply for a mortgage.
While each mortgage lender has their own algorithms and check points, there is a general acceptance that if people want to obtain the best possible mortgage offer, they should look to have a credit score that is at least 700 points. When a person’s credit score starts to fall below 680, a mortgage lender is likely to only offer a mortgage at a more expensive rate, which means that the applicant would end up paying more money each month, and in total, to pay off the mortgage.
There are several ways that people can improve their credit score and the steps involved with doing so help to show a mortgage lender that a person can be relied upon.
Be listed on the electoral register
This is important because it provides confirmation that you are where you claim to be, and that you can be found. This is something that should matter to any lender, so be sure to check the electoral register and make sure you are listed for your current address.
Pay down credit cards but don’t close them off
You should be looking to pay down as much debt or loans as you can but when it comes to credit cards, don’t close them off. This is because the credit utilisation of a person, the credit they use divided by the credit they have available to them, that matters. If you have a lot of credit available to you, but you aren’t using it, a lender will see this as a positive sign.
Don’t apply for credit in the run up to applying for a mortgage
If your credit report shows that you are making numerous credit applications, it is likely that a lender would have concerns about you. This may suggest that you are not managing your finances currently or that you are struggling with your finances. This is not a good sign for a company who is being asked to provide you with significant sums of money in a mortgage.
If you take steps to improve your credit score, you will not only show a mortgage lender that you are a sensible option for a loan, you will make yourself a better candidate. By paying off debt, you’ll hopefully have more money to use for savings or to meet monthly mortgage payments, so you should see improving your credit score as being part of the overall process of improving your finances and moving towards being a mortgage holder.