One might be wondering why some lenders turn down a mortgage application
while some others might consider it fit for approval. The answer may well
lie in the credit report and the credit score to be precise which plays a
crucial role in loan sanctioning.
Credit history is an important factor affecting loan granting decisions by
the lender or mortgagee. As part of the pre-approval process a detailed
investigation is carried out into your financial history whereby the lender
assesses your finances, your credit history and your investments. Your debt
ratios are compared with the lender’s standard while deciding on the
loan approval. Your level of debt or credit history is taken as a parameter
for judging your ability to make the monthly repayments. The credit history
as represented by your credit report plays a very crucial role since some
lending institutions may even turn you down because of incompatibility with
their lending standards. Too much debt and poor credit rating is a common
reason cited for turning down a mortgage application.
At times your application may not be rejected altogether but you may have
to settle for a loan amount lower than what you desired or expected. The
other terms and conditions of the loan might also not have proved worthwhile
for you. All these could have been avoided had you been a little more careful
and vigilant while placing your documents about your personal finances as
reflected by records of your earnings, monthly expenses and debts. Among
these documents the credit report is of prime importance which reveals your
credit score.
While considering your application the lender will also get to analyze your
credit report. This provides all details about your financial history, payment
records, total debts and bankruptcies (if any). This information is used
to work out your credit score or FICO score (a rating of Fair Isaac and Company).
This is a composite number-a numerical rating of your credit worthiness.
These scores may range from 300-900. However, most people’s score fall
between 600 and 700. Higher credit scores make you more appealing to the
lender. Thus, you will be more likely to be offered better rates and loan
terms.
A number of factors can affect the credit score. They can be broadly
classified as:
a) The length of time you have had credit, outstanding credit, methods to
repay this and how close you are to your credit limits.
b) Problems with credit which you may be having like late payments and
bankruptcies. The number and frequencies of your delinquencies is to be
considered.
It may be noted that almost 80% of credit reports contain errors. Getting
for yourself a copy of the report beforehand will enable you to take steps
for improving your score.You will be availed of the opportunity to review
the report and rectify the score to quite an extent.
Some steps which can be taken in this regard are:
a) Finding out credit cards which are not needed anymore and closing the
corresponding credit accounts.
b) Settling outstanding accounts, if any.
c) Paying out your bills, debt payments on time and in full and reduce your
outstanding credit.
d) Verifying all listed account numbers and getting assured that they are
yours.
It may be noted that minor credit problems or problems cropping up due to
illnesses or temporary loss of income due to some unpredictable occurrence
will restrict your chances of getting the aspired loan only from some high-cost
lenders. Other lenders will hopefully be considerate enough to overlook such
minor problems.
In spite of the best efforts there may still be certain negative indications
in the report which could not be done away with. In such case you need to
explain the situation to the lender. If at all it cannot be explained then,
perhaps, you have to make greater down payments.
Getting to know how credit record affects loan prospects, proceed towards
making improvements in your credit report. Your loan prospects will improve,
no doubt. It will take you a long way towards securing your desired mortgage
loan.
Lance Williams is an accomplished writer with specific expertise in the Mortgage
and Real Estate field and has been involved for quite some years with MortgageFit
LLC as a content developer. This is his newest
article
regarding credit report and credit score. For more information visit his
site:
MortgageFit.com
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