So, what do you do if your credit reports make you want to hide under the covers and never use your credit cards again? Relax, you can turn your ratings around.
In this article:
If you have bad credit and fear you’ll face a loan denial when applying for a mortgage, don’t worry. You may still be able to get a mortgage with a low credit score. Of course it will depend on a few factors, so your best bet to see if you'll qualify for a loan is to talk to a lender. Many lenders will have a conversation with you about your eligibility with no obligation to apply for a loan.
First, let's take a look at the credit score ranges from FICO:
Exceptional credit = 800 and above
Very good credit = 740 to 800
Good credit =670 to 740
Fair credit = 580 to 670
Poor credit = under 580
Even if you have low credit, there are still options for buying a home. Among other qualification requirements, mortgages will have credit score requirements. The minimum credit score you'll need depends on the loan type. For example, the minimum required score for conventional loans is 620. But the FHA loan program allows for credit scores of 580. So if low credit continues to dog you, an FHA loan might be your best bet. But remember, lenders may also have different requirements based on other factors such as your down payment amount or income.
Another option that prospective homeowners with bad credit can take is purchasing a home with a co-borrower.
Having bad credit is not the end of the world. It still may be possible for lenders to give you a loan, provided your credit score is not too low. But be aware that you may pay a higher interest rate and more fees since you are more likely to default (fail to pay the loan back). So it's in your best interest to improve your credit score in order to get a lower interest rate, which can save you thousands in the long run.
Mortgage lenders look at the 'age,' dollar amount, and payment history of your different credit lines. That means opening accounts frequently, running up your balances, and paying on time or not at all can impact your credit score negatively. Just changing one of these components of your spending behavior can positively affect your credit score.
There are ways you can improve your credit score, such as paying down your debts, paying your bills on time, and disputing possible errors on your credit report. But on the flip side, there are ways you can also hurt your score, so remember:
Even if you have reversed the downward spiral of your credit history, you might need to tell a prospective lender that there may be some signs of bad credit in your report. This will save you time, since he or she will look at different loans than he might otherwise.
If you are still having trouble getting a loan, ask your lender why. Bad credit is just one of many reasons you may be denied a loan. Other reasons you may be denied a home loan include:
Written by
Val Jordan
05.17.2017
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