Understanding your credit and how it impacts your mortgage application is one of the best ways to make sure that you find the best mortgage you can. But before you can take steps to improve your credit and score a better mortgage, you need to know the basics of credit and how your creditworthiness is evaluated by lenders.
Who cares about credit and why?
Credit is defined as: “confidence in a purchaser’s ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment.”
Since “confidence” and a handshake aren’t enough to guarantee a loan will be repaid, lenders need a more precise way to determine the likelihood of getting their money back. This is where the current system of tracking and measuring credit comes in.
Mortgage lenders, credit card companies, and other financial institutions decide whether or not to lend you money – and how much to charge you for it – by predicting how likely you are to repay them. Short of being able able to see the future, the best way to do this is by reviewing your credit history to evaluate any previous experience managing debt.
Credit Report vs. Credit Score: What’s the difference? Click here for the breakdown.
This blog post is an excerpt from Sindeo’s “Credit Counts: How Better Credit Can Help You Score a Better Mortgage.” Read more over on Sindeo’s blog by clicking here.