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Why does your credit score affect your ability to buy a home?

March 19th, 2012
“Credit Score”, more talked about but less understood term. What do you understand by credit score? Credit score specifies the risk you stand for to a lender as compared to is other consumers or loan seekers. The higher the score, the better it is and lower is the risk of bad debts for the lender. Credit score is a measure to evaluate and find out the amount of risk associated with the person if money is lent to him/her. Credit Score acts as a tool for the lender to decide the amount of risk which he is taking by lending money to the borrower.
Getting a mortgage is usually the largest and most time consuming loan that a person applies and avails in his life. It is the most crucial financial, family decision one has to take. It is very important for you to know how the credit score is calculated and what role it plays in determining your rate of interest on the mortgage. Credit report is nothing but a number showing your likeliness of paying back the debt that you have borrowed. There is no thumb rule for calculating the credit score. Each lender has his own way of determining the credit score but is mainly comprises of few basic aspects. Credit score is based not only on the amount of money you have borrowed in past but also the record of the payments you have made towards your loan installments and credit cards. In Canada the credit history of an individual or firm is based on the information sent by the financial institutes like bank and mortgage firms to the credit-reporting agencies. Eqiuifax and TransUnion are the 2 major credit reporting agencies in Canada.
The credit score and the interest applicable on the borrowed money are inversely related. Higher the credit score, lower will be the interest rate that you need to pay for your loans and lower your credit score, you will end up paying higher interest on your borrowed sum. Make sure you pay your entire bill on time, delayed payment also affect your credit score adversely.
Credit score is mainly calculated using 5 basic factors; Payment History, Amount Owed, Length of Credit History, New Credit and the Type of Credit Used. There are agencies and people who claim to increase your credit score in few months but reality is different. Improving the credit score takes patience, time and diligence. Good credit score can be made by consistently making payments on your credit cards and other loans on time. Longer credit history makes it easy and reliable for the lender to offer lower interest rates for you borrowed money.
If you are looking forward to buy a house on mortgage, be proactive and find your current credit score. You can get it from Eqiuifax. You just have to apply for it with a nominal processing fee. Find out your credit score today and if need be, work towards improving it. This will help you buy your dream house at least possible mortgage interest rates. Happy credit building…