Protect your credit score, a look into Home mortgage impounds

Protect your credit score, a look into Home mortgage impounds.

The world of finance, credit and banking is so alien to most of us mortals that many of us may feel that we do or plan will have as much effect as running in the opposite direction of the Earth’s spin will have on our planets velocity. This is of course a terrible mistake if you are planning to actually carry out any finance activity. Of course the primary finance products we talk about on this site are Home loans and Mortgages but your credit score has a much wider effect on your life. It will affect your credit card application approvals. It will affect your chances of getting approved to lease or rent a property. Obviously, any other loan like car loans and personal loans will be affected by your credit score.

So what is your credit score?

Your credit score is a number that quantifies the reliability you have shown from your credit history. Every loan, credit card and insurance you have contracted is logged and analyzed to see if you paid your installments and if you did it on time. Banks and other lending companies use this short hand score to accelerate their application approval process.

So now we know what your credit score is and how important it is, let’s continue with our next issue, how do home mortgage impounds relate to your credit score.

What on earth are home mortgage impounds? Mortgage impounds refer to the property taxes and insurance on a house, building or piece of land. Paying these bills, property taxes and insurance is terribly important. Failing to pay your property taxes and house insurance could force you to foreclose on your house, which would mean losing it.  Lending companies have vested interested in protecting their investment, which is good for you, because it is your investment also. This vested interest is that if all property taxes and insurance are not paid, selling the house is much more difficult. For this reason banks and lending companies will offer deals where you pay for your yearly expenses related to home mortgage and car credit score. This is done by paying your hard earned money to the lending company. You can pay for this fee monthly, six-monthly and yearly to your lending company. They will then save your money for until the bill is pending.

This procedure is called setting up an escrow account or mortgage impound account. Doing this might have the added benefit of lowering you interest rate as an incentive. However this service can also incur in management fees. Also one must remember that this is not so much a service but a way for your lending company to have interest free money for a set amount of time which they can lend with interest.

An alternative way of protecting your house and credit score without giving away money with no interest is to set your own mortgage impound account. Every month you deposit the monthly equivalent and by the end of the year you will have enough to pay your bills and have a little interest on the side.