When applying for a new mortgage, your credit score (or creditworthiness) is an important factor in determining your loan interest rate. A high score indicates that you are likely to repay the money you borrow and so lenders consider this when deciding whether or not they can lend you the money. However, not all people have access to this information as it is considered private data.
But what would happen if the rating agencies who score your credit score saw that you had previously been charged with fraud?
Would they be likely to give you a lower score?
As Wikipedia explains, “In the United Kingdom, under the Money Laundering Regulations 2007, it is an offence to fail to notify an appointment with a cash office of a police station or any other public officer as soon as reasonably practicable after such appointment.”
And so it turns out that defaulting on a loan can have serious consequences for your credit rating.
“For a bank or other financial institution (FIs), a repayment history is an important factor in making decisions about whether to extend credit and how much credit to offer. Even if the borrower makes good on all of his or her past debts, this doesn’t mean that the FIs won’t consider the debt in deciding whether to lend the money – what matters is not whether they can be paid, but rather whether it is worth paying them. Thus a payment history may weigh against a loan application even if the debt has been paid off. Because of this, a borrower who has a history of failing to make payments may have difficulty getting credit in the future.”
The Financial Consumer Agency of Canada states that “your credit score is based on how you’ve handled your existing financial obligations such as your mortgage, loans, and credit card payments. It also includes non-payment such as late payments or court judgments.”
And so it seems that getting into the wrong kind of debt can have serious consequences for home buyers and this is something to consider carefully when applying for a new mortgage.
What can you do?
If you are planning to borrow money for a home purchase, the best thing to do is to speak with your mortgage broker so that they can advise you on the best type of loan for your situation. Consultation will help ensure that you get the best possible deal and will also help to keep your credit in good shape.
If you have recently suffered misfortune and defaulted on a loan, it is important that you come up with a way of repaying this money. A creditor is more likely to be willing to make a reasonable deal if they know that you are able to pay back the money.
While it is possible for some people to have their credit score affected in this way, it is worth remembering that most lenders will be taking a number of factors into consideration when deciding how much they are likely to charge for the loan. If you can demonstrate a good track record, you may find that they are willing to offer a lower interest rate.
The important thing to remember is that credit ratings are not fixed but are subject to change if certain factors change, and so the best way to approach your financial situation is with a view to improving your score. If you are able to pay your loans off promptly then you will avoid being in a situation where negative information can affect you in future.