If you are buying your first home, you may well use a mortgage to do it since most first-time homebuyers do not have the capital saved up to get a house with cash. This has become the preferred method for buying homes since it allows people to buy homes that they love and keeps them from using so much money on rent, even if they do have to pay a bit in interest. As you move through the process, you may be asked about your credit score, so it is worth knowing why this is important. Why does a credit score matter?
There are two main reasons. First of all, you can think of your credit score as a report that the lender can use to decide if giving you the loan is a good idea in the first place. If your score is low because you took out loans before without paying them back, they will be less likely to do business with you. On the other hand, if your score is good, that is an indication that they can trust you.
For FHA loans credit score ratings are also important because they can factor into the interest rate that you are going to get from the lender. The better your score, the better the rate you can qualify for. This is simply the lender’s reward to you for being a low risk, and it is the way that they make it viable to take on high-risk borrowers. Since those people are paying more to borrow their money, it helps to balance against the risk that they might default on the loan.
One incredibly important thing that you should know is that having no credit is also seen as a negative. If you have never borrowed money – even on a credit card – in the past, it could be a mark against you simply because there is no history to show if you are a risk or not.