The Home Loan Guide

Understand Your Credit.

Almost as important as your income and the amount of equity you have to put toward your home (or already in your home if you want to withdraw equity), your credit report will dictate how much money you can borrow and at what interest rate. Your credit is often summarized into a numeric representation of your deemed credit worthiness using a credit score. Your credit score is then used by banks and lenders to determine whether or not you are creditworthy, and if you are, how much and at what interest rate they will lend you money.

Your credit score is based on your credit reports and is determined by averaging the information on your credit report against millions of other people's credit reports. The primary factors that determine your credit score are: your previous payment behavior (the fewer late payments the better), your current debt (the lower the better), the length of time you've used credit (the longer the better) and whether or not you are pursuing credit (the fewer recent credit applications the better). A credit score can vary from 375 to 900, with 900 being the best. And although not everyone agrees, a credit score of 650 or higher is considered excellent by most lenders.

It's important that you understand your credit before you apply for a loan. If your credit is great (a score above 650) then you should expect to get very competitive interest rates and lenders may even offer you loans higher than you ask for. On the other hand, if you have bad credit, don't worry, there are plenty of lenders out there that will give you a loan. However, these loans will often be for higher interest rates and/or lower loan amounts. Understanding your credit is important so that you can accurately set your loan expectations. Click here to learn more about your credit.

If you are in the UK you might find the credit rating guides on this website useful.

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