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Credit Score Is a Major Factor In Getting A Mortgage

You'll find that the higher the credit score, the lower the interest rate will be on your mortgage, so everyone should be incentivised to develop as high a credit score as they possibly can.

While each lender has their own criteria and this a continually evolving situation, most experts suggest that having a credit score of 740 or higher will lead to the applicant receiving the best offer from mortgage lenders. It is also believed that anyone with a credit score of 620 or less will struggle to obtain a mortgage from the majority of lenders, or at least receive an unappealing offer.

A small difference in your mortgage offer can significantly impact on how much you pay

This is important because there can be as much as a percentage point and a half, or even two percentage points of a difference in the offer made by a mortgage lender. Over the course of a mortgage, and for the large sums of money involved, this small percentage difference can have a massive impact on the amount of money that a person will have to pay over the years to pay off the mortgage.

As an example, someone taking out a 30 year fixed rate mortgage for £200,000 with a 4% interest rate will pay £954.83 per month in mortgage payments and interest. However, the same mortgage and terms with a 5% interest rate costs £1,073.64 per month, so this is a big difference. When you add in the fact that this difference is multiplied by twelve times over the course of the year and then thirty times over the lifetime of the mortgage, that one percent change in rates will have a huge impact on the overall cost of the mortgage.

There is also the fact that a low credit score makes it more likely that a mortgage lender will refuse an application. Mortgage lenders are not in the business of handing out mortgages that they deem to be a significant risk, not in the current climate, and one of the best guides a firm has for determining risk is the credit score. Many people feel this is unfair as the credit score details a person's past as opposed to where they are now or their ability to pay money in the future, but mortgage lenders need to have some parameters to make a judgment on. The credit score is deemed to be the fairest way to decide how much of a risk an individual is.

There are different factors involved with making up a credit score and lenders will look at:

" The level of outstanding debt a person has " The level of outstanding debt in relation to the total available debt a person has " The length of time a person has had a credit score for " Is the person actively seeking credit?

You will find that mortgage lenders are looking for applicants with have low balances with respect to debt and have a long-term history of making payments on time and having a variety of credit sources.

Published on 28 April 2017

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