In real estate, credit scores are the key concerns when buying a house or renting a property. For instance, if you lend money to anyone, you need to be assured that you will get your money back, right? This is where credit scores come into play.
It is a statistical method to comprehend your creditworthiness. Putting it into simple words, it is a number that depicts whether or not you are a reliable person to lend a loan. Considering your credit report, which is a reliable summary of your credit history displaying whether you have made payments on time or not and evaluating your odds of continuing with your loan payments in the future. In correspondence to your credit report, you are presented with a score, which the lenders refer to when you apply for loans, mortgages, and credit cards. You can check your credit score by opting for variable credit agencies like Equifax, Experian, or Call credit.
The average FICO score range is used to determine your credit score’s liability.
Excellent: 800 to 850
Very Good: 740 to 799
Good: 670 to 739
Fair: 580 to 669
Poor: 300 to 579
How it Works
Your credit score deduces the interest rate and other costs that you are implied to pay against a mortgage loan. If you are displaying a score below 600, you will be labeled as a subprime borrower. Lenders view you as a risky investment. They will charge you a hefty interest rate on a subprime mortgage than on a conventional one. Conversely, if your credit score is above 700, you will be viewed as a reliable investment. It will give you the leverage to enjoy less interest rate thus, facilitating you to pay back your loan at full tilt.
Why Credit Score Matters?
Buying a house
Whether or not you will be able to put your hands on your dream house is merely fated upon your credit scores. Besides the interest rate, the credit score also determines the size of the initial deposit needed to own a house. Most mortgages are paid off over the span of 30 years. It is seldom that a mortgage fully covers the actual price of your house. So you will need a deposit to fund your property to avail better mortgage terms. Researchers state at least a 20% down payment or deposit is advisable to enjoy favorable mortgage rates. Hence, your credit score will determine whether or not you will be able to secure that hefty amount for the initial deposit.
Renting a Property
Credit scores not only affect your purchasing power to own a house, but your credit history also extends to renting. A landlord needs to be certain if you will pay the rent on every month’s end, and for this, your credit score is something prudent to break the ice for you. Research from a clear score stated that 62% of the landlords considered the credit score a basic criteria for renting their house to tenants. So if your credit history exhibits significant lags in paying on time or missed payments, then it is more likely that your application will be dismissed.
Published on 2021-05-03 19:29:15