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Your Home Is At Risk If..

“Your home is at risk if you do not keep up repayments on a mortgage or other loan secured on it”. Words that have to be printed on any promotional material for mortgages or home-owner secured loans. Is this the only reason you should keep paying your mortgage?

Credit rating

There are two main credit rating agencies in this country, Experian and Equifax. Every time you apply for a loan, the lending company will access the file that one of these agencies holds on you to determine how much of a financial risk you are to the lender.

They will spend time ensuring they don’t lose their money if they provide you with a mortgage. They also want to establish if you will make them extra money or will you play the game straight down the middle and simply pay the allocated amounts regularly with no fuss?

Notice we have not said “lose their money”. No financial institution loses their money once they have lent it out, they may have less than profitable loans if they have to chase the customer for repayments or take them to court because the customer has defaulted on a loan, all of which costs them in administrative time, but be certain they will get their money back in the end.

A good rating

Your credit rating is partly built up based on whether you repay your creditors such as credit card companies, mortgage lenders, utility companies, on time and in full. It’s also based upon things like whether you are registered in the electoral register and what your postcode is.

If you find yourself in a situation where you can’t meet the monthly repayments and arrange to run up some arrears on your mortgage that information will be passed on to the credit rating agencies and it will adversely affect your rating.

Mind like a sieve

Credit ratings produce a number for each person from 1 to 1000, 1 is a low credit rating, meaning the person may be a high risk and 1000 is a high credit rating, meaning the person is a good risk and the lender is likely to make money out of them.

Note that a good (high) credit rating does not necessarily mean the person pays back their debt consistently – they may make a few mistakes in the course of their indebtedness, such as forgetting to pay a few credit card bills on time and so get penalties charged against them. This sort of action is good news to the lenders as it’s additional income for them.

If you are going to have to make arrangements with your mortgage company to go into arrears for a couple of months then try as hard as you can to make sure you arrange it so that it will not show up on your credit rating. You can sometimes do this by arranging to pay a token amount which they will tell you in order for their records to register that payments are still being maintained consistently. Remember, it is not the people at the lending company that you have to satisfy; you just have to talk to them to work out a way to keep their computer system happy.

We tend to think of a person who may have a credit rating of 1000 (if such a person exists) as a very wealthy but highly forgetful individual with a handful of credit cards, a huge mortgage or two and probably several car loans. So, not the richest people in the world, but probably the most eccentric!

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