How Important is Credit Score When Investing in Property?

Investing in property is an appealing prospect, with the promise of reliable returns that go above and beyond what you could expect from a standard savings account, along with greater stability and security than other forms of investment.

However, there are a few hurdles to overcome before you can become a property investor, especially if you are planning to build your portfolio of homes with a mortgage. Here is a look at the extent to which your credit score will influence your ability to secure a mortgage and invest in property.

Credit score and mortgage rates

First and foremost, you need to remember that the higher your credit score climbs, the better the rates you will receive from mortgage lenders.

For example, 15 year mortgage rates may be at historically low levels, which is good for driving down repayments, but unless your credit score is up to scratch then you may not get the best deals, and might ultimately be unsuccessful when applying for a loan of this kind.

The reason for this is simple; your credit score is an indication of your reliability as a prospect for any lender, so if you have proven yourself by paying off credit in the past, then this will be reflected both in your score and in the lower rates of interest which are applied to any mortgage you secure. Conversely if you have a lower score, it suggests to lenders that you may not be as reliable in making repayments, and are therefore a higher risk from their point of view.

In essence, unless you fall into one of the higher brackets with your score, investing in property will either cost you more, or be entirely impossible to do in the first place, which makes it pretty fundamental to the process.

Different factors, models & score tiers

With the importance of a good credit score cemented in your mind, it is now sensible to explore exactly what score models and specific tiers are necessary for any prospective property investor to adhere to.

There are various models out there, with FICO and Equifax being two of the best known and most widely used. Although each model takes different factors into account to calculate your score, there are a few consistent elements that are weighted to determine this in most instances, including your payment history, the length of time over which you have had a credit history, the amount you own on any credit cards, loans and mortgages, as well as the type and volume of inquiries raised against your account.

Again the score tiers vary depending on the model in question, but in the case of FICO this starts at 300 and tops out at 850. On average most successful property loan applications are submitted by people with a score of at least 752, and anything lower than 620 is unlikely to be eligible under the guidelines of mainstream lenders.

Improving your score

To get into property investment you will need a good credit score unless you have the capital to buy homes outright, in which case staying on top of your credit score and acting to improve it will be necessary.

There are a number of ways to go about this, such as keeping up with payments on loans and credit cards, and also closing credit accounts where possible to demonstrate your worthiness as a prospect to lenders.

Finally, remember that you can shop around to get the best mortgage rates and deals as an investor, so do not settle for the first loan you find.

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