Your credit score is based upon how well you have behaved with borrowed money over the last few years and how you are managing your accounts at the moment. The idea is that is can furnish your lender an idea of the prospect that you will repay your mortgage loan in full, or if there is a probability that you might get into payment difficulties and default on the payments.
Obviously, if a bank is going to give you money then they want that sum of money back off you, together with their profit in the form of interest. If they are happy that there is a high likelihood that you will pay off the mortgage in full then they may want to attract your to them, considering you as 'easy' money. Those with good credit scores are most expected to be the least trouble. Therefore, the banks are battling for your custom, so they are eager to offer you a lower interest rate in the rivalry for you to become a customer of theirs.
This means that those with good credit ratings are rewarded by a battle between the banks and lower interest charges.
At the other end of the scale, there are those that are very nearly certainly going to struggle to pay off the total mortgage. For these, their credit score is low and this is where the problems begin. Because there is a higher probability that these customers are not going to complete all of the payments and might need chasing for repayments throughout the term of the mortgage, some banks will not do business with them. This means less contest for the business of these people.
Also, for the reason that there is the bigger chance of failing to complete repayments, the banks will want to try to get as much cash back as quickly as possible. For this reason, the basic interest rate on the finance will be increased to make sure that money is coming in quick and that if as part of a debt difficulty negotiation the monthly total needs to be reduced, then they are still getting satisfactory money back.
But it is not just at the point that you sign up with the lender that the credit score is influential. During the term of the mortgage you might have special offers that come to an end and need to be renegotiated.
It might be that you decide that you want to move to a different lender for a superior deal, but if since you took out the original mortgage you have managed your finances badly and your credit score has dropped, you might find that other lenders won't trade with you. You may also discover that your lender is now hesitant to move you onto their equally good deals, so it is necessary to stay on the base loan.
That is why your mortgage is connected to your credit and credit rating.
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