How to get a mortgage with bad credit

So you have a bad credit score and you need to take out a mortgage to purchase a house of your own. Normally, banking establishments require a credit score of 700 or higher to approve a mortgage. However, those with a bad credit score would normally not qualify for a mortgage.

But first, what’s Credit rating.

A ‘bad credit score’ can be interpreted in many ways by loan lenders. A loan lender would typically require a credit score upwards of 620. On the other hand, the lenders do not approve a mortgage purely on the basis of a credit score. There are other factors that are also considered.

Some of which are:

  • the Age of the account: this basically looks at how long you have been having the line of credit.
  • Regularity of making payments: they check if you have the tendency to max out your credit limit or if you make payments on time. The frequency of regular payments is considered important.
  • History of opening up new credit lines. If you have made too many inquiries or opened too many accounts your credit scores will be affected.

Some lenders will be willing to turn a blind eye to a bad score provided it was greater than 600. According to bankrate.com, the following are the status of the credit scores.

score rangecomment
750 and higherexcellent
749 and 700good
650 to 699fair
600 to 649poor
599 and lessbad

If your credit score is less than 700 but greater than 600, you can still secure a mortgage even though you have a ‘bad credit score’. The government funded FHA mortgages have reduced their requirements. To be eligible, you should have a FICO score of at least 580. Failing which you should be able to deposit a minimum of 10% of the mortgage amount. However, all is not lost.

credit ratings

Bankrate reports that Carrington Mortgage Services have approved mortgages from applicants having a score of 550.

What can a person with a poor credit rating do to secure a mortgage?

If your credit score is less than 580 you can still obtain a mortgage if:

  • You are willing to make a down payment more than 10% of the loan amount
  • You take remedial action to improve your credit. According to myFICO, reducing your credit card balances should be a priority and advises you should “stop using your credit cards”. A plan should be drawn up and implemented to ensure credit cards with a higher interest is paid more while others accounts are maintained by ensuring the minimum amounts are paid.
  • You look for a lender with minimal overlays
  • Ask for mortgaging options. One such options is “Adjustable Rate Mortgage” which offers you a low interest for a short period providing you with the opportunity to remedy your poor credit status.
  • You can get a family member with good credit history to be a co-signer.

Credit Repair: Credit Repair Facts & Tips

If you have low credit scores and your applications for new credit are being rejected, it is time to take remedial action. The key action here is credit repair.

Note: Reading this just remember about Credit Repair Organizations Act.

When people with low scores are unable to secure loans, they will find they are inundated with newsletters, fliers, emails and a host of other notices from people making false claims and offering Credit Repair Services. One should note that the Federal Trade Commission has brought several lawsuits against firms found guilty of credit repair scams.

How do you save yourselves from these scams? Knowing some vital facts will save you from becoming a victim.

Facts regarding Credit Repair.

  1. There is no quick fix formula for credit repair. You are entitled to a free copy of your credit report from Experian, Equifax and TransUnion. You should order your free copies of your credit reports from annualcreditreport.com and analyze them. You can also call them on 1-877-322-8228. Your three reports can be obtained at once or delivered to you staggered over a specified period.
  2. Accurate and negative information cannot be removed from your credit report in a hurry. Some information like bankruptcies, mortgages, liens, judgements etc have to be shown on the credit report for a stipulated number of years. They cannot be removed until the period defined by law has passed.
  3. No one but you can repair your credit better. The Federal Trade Commission offers assistance in credit repair and provides guidelines for D-I-Y credit repairs. Do not get caught to credit repair scams that promise to remove negative information and increase your credit scores. They target people with fliers, newsletters, emails etc claiming they can wipe out negative information completely and many more false claims. Genuine credit repair organizations do not make such claims.
  4. Credit Repair companies cannot charge you for services without delivering on their promise. The Credit Repair Organizations Act, clearly states that credit repair companies can charge you for services rendered only six months after they have completed what they promised. If these credit repair companies do not deliver, you can lodge a complaint with the closest consumer affairs office or a state attorney.
  5. Credit Repair companies should be approved by the government. If you feel that you cannot go about it alone, you can consult a credit repair counsellor approved by the government.

The next step is to know how we should go about repairing our credit status. This cannot be done overnight. However, with a strong willpower and a desire to succeed, you can repair your credit within 6 – 24 months depending on the level of the credit score.

credit repair worksheet

Tips for Repairing Credit

The following are some important tips to be remembered when repairing your credit.

  1. Know your rights under the law. The Fair Credit Reporting act specifies your rights according to the law with regard to credit reports. You are entitled to three annual credit reports from each of the three bureaus. According to the latest reports by the FTC, credit reports have many inaccuracies. You should order your credit reports and check for inaccuracies. If there were any discrepancies, you MUST dispute the error by sending a dispute resolution letter to the Credit Bureau. A sample dispute letter is available here. Alternatively, you can file a complaint with the FTC.
  2. Be aware of the Credit Repair Organizations Act (CROA). The CROA was designed to protect people like you from scammers. Your rights with regards to Credit repair are clearly specified. It is imperative that you should be aware of your rights under the law.
  3. Understand the terms of the Credit Report. To repair your credit scores, you should first understand where you have defaulted. Thereafter a detailed plan should be made to implement a series of actions to repair your credit. This cannot be done overnight. It will take at least two to three years. However, with perseverance and diligence your credit scores can be imporved.
  4. Know where to get help. In the event you feel you need help handling your finances, you can seek assistance by contacting a credit repair counsellor approved by the government. Such counsellors will be able to guide you in making a plan of action, budgeting your funds and advise you in various ways of implementing them. Alternatively, you can contact your creditors and obtain their help in rescheduling your credit lines.

Why Check Your Credit Report

You may have never checked your own credit report and that is probably because you never realized there was a reason to. However, there are actually lots of important reasons why you should check your credit report and check it on a regular basis. Believe it or not but by signing up for a credit monitoring service you can check your FICO credit score on a regular basis and save yourself lots of money and headaches over the course of a lifetime. The following three reasons are just some of the many reasons to check your credit report on a regular basis.

Mistakes
It is very likely a mistake or several may appear on your credit report. It could be that someone with a similar name or social security has their information on your credit report. Your own personal information may not be reported correctly either. Checking your credit report on a regular basis will ensure mistakes are not present on your report.

Identity Theft
Identity theft is a real problem and it happens to millions of Americans each and every year. Checking your credit report on a regular basis allows you to see all activity as soon as it occurs. If someone does try to steal your identity you will know it immediately and can prevent any additional harm from occurring.

Debt Analysis
You may not realize the exact state of your debt but if you review your credit report on a regular basis you will see how much you owe, how much you are paying each month, and then you can analyze your debt and see how you can pay it off quicker. The last thing you want to do is be in debt and reviewing your credit report regularly helps you analyze your debt.

Identity Theft Credit Problems

You have heard about all the different cases of identity theft and you are worried it could happen to you. That’s because you shop online and use various credit cards and know you are at risk. However, how will you know if you are a victim of identity theft before it is too late? One option is to check your credit report on a regular basis.

When you check your credit report frequently you can see in no time if there is new activity that is not yours. If that happens you can immediately put a hold on that credit card or banking account and evade all kinds of problems with your credit because you caught the problem as soon as it started. In most cases you will not be held responsible for charges that are a result of identity theft but ti can take a long time to get this all resolved and in the mean time your credit is run through the ringer! Imagine a credit card being issued in your name to someone who has stolen your identity. They charge up to the credit limit, never make any payments, and you are none to the wiser until you are declined for credit and decide to look at your credit report. Don’t let this happen to you.

The way to avoid this is to check your credit report on a weekly basis or a biweekly basis .That way if there are any credit checks, new credit cards issued, or anything of that nature you will know immediately.

Everyone is at risk of being a victim of identify theft. As a result it is imperative that you check your credit report on a regular basis. Doing this will help you keep your good name and good credit in tact and know immediately if you do become a victim of identity theft.

Applying for a Home Loan?

Have you decided to buy a new home and are going to apply for a home loan? Do you realize that your credit score will directly impact what interest rates you receive and whether or not you are approved for the loan? Your credit score plays a very important role in your home loan so you should do a little research before applying for a loan.

The first thing you should keep in mind is that the higher your credit score the better terms you will receive on your loan. So, the best option for you is to check your credit score first before every applying for a loan. That way you will know if your score is where it needs to be to get the best rates or if you would even be approved for the loan at all. If for some reason your credit score is not as high as you would like it to be then you have some time to make it better before applying for a home loan.

The first suggestion is to get your credit score up as much as possible and then apply for a home loan. Doing this will save you thousands of dollars over the life of your loan because you could get a better deal on the interest rate offered. The way to go about increasing your credit score in order to be approved for a home loan is to start making all payments on time. This is really the most important thing you can do and when you pay all of your payments on time your credit score will start going up. As you are making timely payments you also want to avoid using your credit. That way your credit to debt ratio will increase and so will your credit score. With every little change you make your score will go up and your chances of being approved for a home loan at a great rate goes up with it.

As you can see it is important for you to know your credit score, and check it often, before applying for a home loan. It can really help you in the long run and when you take your credit score in your own hands you will almost definitely be approved for a home loan with a great interest rate.