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HomeFinanceHow Your Credit Score Impacts Your Mortgage: A Short Guide

How Your Credit Score Impacts Your Mortgage: A Short Guide

A credit score indicates your financial credibility. It reflects a number that shows your ability to repay loans. A mortgage broker in Kellyville will often ask your credit score to determine your worth as a borrower. 

 

In the home buying process, a credit score is a significant factor shaping the loan amount you’re offered, loan options available to you, and, ultimately, the affordability of your home. So, if you are a first-time home buyer, then keep reading this guide to learn more about how credit score influences mortgage. 

 

As you read through this blog, you’ll explore the meaning behind credit score ranges, their impact on mortgage rates, credit improvement tips, how to check credit scores, the importance of preparing credit before applying, and the most common concerns. 

 

Let’s start with understanding the different credit score ranges.

 

Credit Score Basics:

There are two most common credit scoring models; one is FICO, and the other one is VantageScore. Both models slightly differ in the score bracket, but these accurately define the borrower’s ability to handle credit responsibly. 

 

  • Excellent (FICO 800-850, VantageScore 781-850)

If your credit score falls within this range, then you are an excellent borrower in the eyes of lenders. Professionals prioritise perfect credit scores to qualify borrowers with the best mortgage rates and terms. Additionally, a mortgage broker in Kellyville sees a person with an excellent credit history as reliable, with no risks of late or no payments.

 

  • Very Good (FICO 740-799, VantageScore 721-780)

Homebuyers with very good credit scores enjoy competitive rates and terms, which may be less favourable than those having excellent credit scores. These individuals are known for on-time payments for loans, credit cards, and Mortgages. Additionally, you have to keep your credit card balances to the credit limit ratio below 30% to be eligible for a very good credit score. 

 

  • Good (FICO 670-739, VantageScore 661-720)

If your credit score ranges within this score, you are a good candidate for various types of credit, including mortgage loans. Lenders approve mortgage applications with good scores and consider them acceptable under various financial circumstances. 

 

However, the only challenge you may face here is the higher interest rates than those offered to borrowers with 740 to 850 credit scores. 

 

  • Fair (FICO 580-669, VantageScore 601-660)

Fair credit encounters challenges in securing a mortgage. If your credit score falls within the fair range, then interest rates will be higher, and terms will be less favourable. Moreover, traditional lenders may offer loans, but you will have limited options. 

 

To maintain your credit profile strong, it is essential to consider your income, employment, and debt-income ratio as an important factor before you find a mortgage location.

 

  • Poor (FICO 300-579, VantageScore 300-600)

Individuals with poor credit history and higher debt ratios fall under the poor credit score range category. While higher interest rates and the least favourable terms are unquestionable outcomes for poor credit, one may need help to qualify for a mortgage, even from traditional banks. 

 

You may be eligible for alternative financing options: subprime mortgages, private lenders, or credit unions. 

 

Tips for Improving Credit:

Here are some practical tips to improve your credit score. 

 

  • Check Your Credit Report

Obtain a free credit report annually from credit reporting companies like Equifax, Experian, and Illion. Each may have a unique process, although you can request a copy through mail. Once you receive it, check for errors in account information, inaccurate payment status, and entry of accounts that don’t belong to you. Submit a dispute with supporting explanations if you find any differences or fraudulent activities. 

 

  • Review the Factors for Credit Score

Consider all the factors that influence a credit score. Whether it is credit history, length of credit, credit utilisation, or types of credit accounts. To achieve the best credit score, making on-time payments for debts and loans and keeping credit balances low is crucial. Moreover, keeping credit accounts open for longer implies your ability to handle credit for a long time. 

 

  • Avoid Unnecessary Credit Accounts

Any new credit account welcomes the risk factor associated with a credit score. Avoid multiple credit enquiries and accounts that can make you see as someone with poor credibility. Limiting the number of credit applications is also advantageous to improve your credit score. 

 

  • Become an Authorised User

Another convenient way to improve your credit profile is to become an authorised user on another person’s credit account. You can ask your friends or family members with good credit to add you as an authorised user on their credit accounts. 

 

  • Find a Mortgage Broker

While searching for a mortgage location, ask a mortgage broker who is an expert in this field and can guide you through improving your credit score. 

 

How to Check and Monitor Your Credit Score:

Now, let’s figure out how to check and monitor your credit score. Here are a few ways to do so correctly.

 

  • Credit Card Statement

Some credit card companies give access to free credit scores on monthly statements. See if your credit card company offers these services. Additionally, some financial apps and online banking platforms provide credit score monitoring. 

 

  • Check with Your Bank or Credit Union

Many banks or credit unions offer free access to credit score reports. Credit score monitoring with your financial institution is a part of the service, so it is advisable to enquire about the same.

 

  • Credit Monitoring Apps

Several mobile apps provide access to credit score information. These apps often offer real-time updates and alerts. So, finding the best and most secure mobile apps before you find a mortgage location is best. 

 

The Importance of Preparing Your Credit Before Applying:

Now that you have understood the credit score and ways to improve and monitor your credit score, let’s head over to understand the importance of preparing credit before applying for a mortgage. 

 

  • Enhances loan approval
  • Favourable interest rates
  • Lower fees 
  • Down payment requirements
  • Lower borrowing costs
  • Broader loan options
  • Easy to negotiate with lenders
  • Establishes long-term financial health

 

Takeaway

As you embark on the mortgage application journey, following all the above factors influencing your credit decision is crucial. Understand different credit score tiers and the interest rates available with the mortgage company, seek guidance on improving and monitoring the credit score, and learn the importance of preparing credit well in advance. 

 

When you search for a mortgage broker in Kellyville, understand each of the nuances to get the best expertise. 

 

Take Financial Guidance from Right Click Finance

At Right Click Finance, our mortgage brokers are trained, experienced, and licensed to offer reliable financing solutions as per your budget. We will thoroughly assess your financial situation, needs, and concerns, followed by reviewing all the documents before presenting the available loan options. 

 

Call or schedule an appointment with us over the website for any loaning needs.

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