Your credit score is an important factor in determining how much money you can acquire from lenders. Your credit score is determined from your credit report. When your credit report is formulated it will be assessed and analysed to determine your overall credit score. A high credit score reflects favourable on you and will allow you to easily obtain credit, while a low credit score will be to your disadvantage and will lower your ability to borrow. If you have past instances of not paying debts or being consistently delinquent in making payments then this will be reflected on your credit report and thus lower your credit score. On the other hand, your credit score will be much higher if you always paid your loans on time and ultimately cleared any previous debts.
For this reason when you are applying for a mortgage the prospective lender will view your credit report which will include your credit score and credit history. From this analysis he or she will be better able to derive what type of borrower you are. This simply means the lender will take your credit score into serious consideration before approving your loan. It should be noted however that there may be a slight difference in your score dependent on the institution. Banks and credit card companies often arrive at your credit score using different formulas. Hence, the credit score you may have obtained independently may not be the exact figure used. If you have a high credit score you will undoubtedly be approved to enter into a mortgage agreement while having a low credit score will do exactly the opposite. A high credit score is therefore your best guarantee to being approved for a mortgage.
Additionally the differences in credit score will affect the interest rate on the mortgage. For example Philip has a credit score of 820 and Martha has a credit score of 500. When they go to the institution to access a mortgage plan Philip learns that he qualifies for the 6% interest rate on his $250,000 mortgage. This means he will pay approximately $1250 per month. Martha, on the other hand, can only be approved for a 7.5% interest rate on the same amount and thus pays $1562.5 monthly. Therefore though Martha is applying for the same mortgage amount she will pay more than $300 more than Philip monthly.
It is therefore important that any person who is interested in obtaining a mortgage first review their credit report and score. If it is found that the credit score is too low, then an attempt should be made to improve it before approaching any lenders.
