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31 Jan

Why Does My Credit Matter?

Posted January 31st, 2008 | View Comments

When buying a home, you will be borrowing money from a bank or other lending institution. This kind of loan is called a “secured loan” because it is secured by something else, in this case – a house – an asset with a value attached to it. It is unlike a credit card which is an unsecured loan and hence has higher interest rates.

Unless your relative is lending you the money (in which case, lucky you!) the bank has no way to know whether you will pay the money back and make your mortgage payments on time without checking your financial profile. Along with your income verification and other assets, your credit score is a major factor in assessing the amount of risk you would be to a lender.

Read how scores work at Bankrate.com

  • jj

    Interesting that you mention relatives lending money. Do you know if there are special rules associated with lending to family? If I paid off my brothers mortgage and he made payments to me, would I have to declare the interest as taxable income? How would they even know it’s interest.

  • http://www.sacramentorealestategal.com Purva Brown

    I don’t think there are special rules with lending money to relatives. I like to keep everything legal, so even if the money is coming from a personal source, just to ensure that no one gets into trouble through it, I would recommend following the legal guidelines and reporting all income, printing 1099s and so on.

    One of the benefits of borrowing from a relative might be a lower interest rate, however. I don’t believe there are legal consequences to that, but I would check all resources, just to be sure.

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