Home mortgage
Home mortgage is a type of loan, available to people who want to pay very big debts. It normally involves a bank but is not restricted to it. It is a pledge or commitment where a homeowner gives the title of his property as a type of security for a loan – your home becomes collateral. When you get your loan, you must pay a specific amount at various intervals, depending on the terms agreed on. Failure to do so, could result in forfeiture of your home.
But getting a loan is not a cakewalk for everyone. This is truer when it comes from borrowing from big banks and financial institutes. Since even we hesitate to lend a nominal amount to complete stranger, it is no surprise that many banks and financial institutes are selective about the people to whom they lend.
Then the question arises: how do you obtain a loan? First you must apply for it, but there is no assurance that it will be given. Banks, financial companies, and other lenders will have to look at your profile carefully, especially a decisive factor known as a credit rating.
Credit rating
A credit rating is an assessment obtained from credit reports, and lists your credit activities like borrowing, debt, payments, etc. Primarily, the credit rating denotes the amount of credit you can get without the lender having to face an unwarranted risk. What this means for you is that if you have higher credit rating, you are eligible for higher loan amount.
To obtain a good credit rating that can improve your chances of obtaining a loan, all you have to do is to pay your bills, loans and other financial dues on time. A good credit rating gives you wider financial opportunities than what you can get with a poor credit limit that can hamper you financially.
Credit reports
As you are aware that the credit rating is obtained from credit reports, you may be wondering, what are credit reports? They are the reports in which your credit activities are recorded, like loans, balances, unpaid debts, with some background information. These credit reports are collected by credit bureaus or consumer reporting agency.
These agencies exist to stabilize the financial market. Besides you need not worry, since these entities are completely legal. The government knows about these agencies and their activities. They are governed by a law called the Fair Credit Reporting Act (FCRA).
Fair Credit Reporting Act
This law is federal law governing consumer credit information. By regulating consumer credit information, appropriate credit ratings can be given using most of the information available. There are certain rules and regulations that the consumer reporting agencies have to follow, and are laid out in this specific federal law.
This law actually benefits the consumers, the consumer reporting agency, and the lenders. It clarifies certain likely problems that can occur between consumers and their credit rating, and attempts to prevent that from happening. Consumers are allowed to get one free credit report every year, thanks to this Act.
To summarize, if you want a loan, it is in your best interest to have a good credit rating that is shown by your glowing credit report. As the credit rating and credit report play a decisive role while applying for a loan, the total credit rating you have tells the lender how good a finance manager you are.