How Your Credit Score Will Affect Your Property Purchase
As property investors we are always looking for a way to reduce the cost of our investment, one of the ways we have found that can be particularly useful is to find out how credit score will affect your property purchase. Although this is not covered in the UK property buying guide it is covered in our Financial Services Authority guide on Home Buying. The FSA has taken a decision to remove certain sections from this guide as they have concluded that the information supplied could be confusing. For those readers who are interested in how the credit score will affect your property purchase here is some background information.
If you want to make the best possible home buying decision, you need to look at all aspects of your finances before making any home purchase. The subject of how credit score will affect your property purchase has been researched by us and we have discovered that there are three main elements which need to be considered when you are taking out a mortgage. These three aspects are your credit history, the cost of the mortgage and the repayment terms.
The first element we will look at is your credit history. This will give an indication as to how good or bad your credit history is. For those readers who are concerned about how credit score will affect your property purchase here is some background information. The credit report contains detailed information on the financial activity undertaken by an individual and the credit report also gives an indication of the individual’s ability to manage their money.
There are three main parts to the credit history. These are the details recorded at the time the loan is granted; the details recorded at the time of the mortgage being taken out and finally the details recorded at the time of the sale of the property. In the majority of cases the best possible credit history is one where the individual has never missed a payment or has not charged arrears. This will give the lender the confidence to issue a mortgage and you will be able to find a range of mortgage deals that match your individual circumstances. As mentioned above if you have poor credit then you can still get competitive interest rates and this will save you thousands of pounds over the lifetime of the mortgage. However, many people with poor credit find it difficult to get competitive rates and so many will continue to buy property without fully understanding how credit score will affect their property purchase.
If you apply for a mortgage and your credit score is below the cut off point then you may find that you are refused outright. However, there are other ways that you can raise your credit score to the level you are looking for in order to secure your property purchase. The first and simplest way is to make your payments on time every month. Another way of raising your credit score is to pay off any outstanding debts you may owe and this will show a potential new lender that you are financially responsible.
How credit history is determined is usually by taking your credit file along when you apply for the mortgage. Your credit file will contain information such as how long you have held your current job, any loans or overdrafts that you have and whether you have maintained a good repayment schedule over recent years. It will also contain details of any late payments and any court action that has been taken against you. All this information will be taken into account when the lender decides how much the interest rate you will be offered. However, in order to improve your credit history you will have to start living within your means and make all your future repayments on time.
Another factor to consider is how credit score will affect your property purchase in the event of a missed or delayed payment. A number of home owners are unaware that even one late payment can lead to a legal action being brought against them. In the worst case scenario late fees and penalties could be applied and it is not uncommon for people to be taken to court over a minor issue that has arisen.
The main benefit of knowing how credit score will affect your property purchase is that it can help to protect you from any negative consequences that may arise. It is often felt that you do not need to know how credit history is determined and how it will affect your application for a mortgage. However, just as you would not choose to go shopping in a store that did not accept your credit card, you should also avoid letting your lender decides how credit score you should be. If your lender believes that you are a high risk then you may be refused a mortgage. On the other hand, if you have perfect credit then you may find your interest rates are lowered and your repayments are less than the standard rate of interest.
