Getting a loan with poor credit score is quite a complex process. If you want to take out a mortgage to become a proud owner of a house, but your credit history leaves much to be desired check our infographic, to find several effectives ways, which can help you improve your credit score and bring you closer to the realization of your goal.
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Bad credit mortgages cause problems for people who have a poor credit history, fortunately there are a few options in place to help people who do not have the perfect credit rating.
Firstly if a person is wanting to take out a mortgage (potentially a home buyer) they must research their personal credit profile. On discovering that your credit score is less than perfect (this can be done easily online for a small fee) it would be wise to seek advice from your lender, they can put in place ways which will help to improve your credit rating. This process can take many months even a few years to boost your credit score enough to clear bad credit. Some steps to do this are as follows.
Firstly remove all those small balance credit cards, over time this amount can add up and can lead to added debt, this will keep your credit score a lot cleaner and more refined helping lenders paint a more accurate picture of credit habits. It will also reduce interest repayments making it easier to manage your personal situation.
Secondly it is sensible to keep good old debts on your credit report, for example a car which was paid off according to the terms of the credit agreement. Lots of people try to remove this debt from their credit scores as soon as it is paid off but it is actually useful to keep this. It can increase your credit rating as it proves that in the past debt has been successfully paid off.
It can also be beneficial to apply for multiple lots of credit around the same period, this is because when you continually apply for credit it symbolises that you live from credit which can harm your credit rating, this means that it would be beneficial to apply for credit at the same time as your credit score may have dropped making getting a mortgage a lot harder.
Simply paying bills on time can be another way to keep your credit rating clean, if you are about to make a large purchase like a car or house a clean credit rating is very important. It is important to provide month on month payments which have been paid on time as proof. Saving for the big purchase is important yet letting small bills slip on the way can hinder your credit score in the process!
Finally spend your money sensibly, your credit score will reflect this. By spending sensibly you will rely on less credit, this show lenders that you can spend wisely and have control of your financial position.
There are also other ways to have bad credit mortgages approved, in the housing boom some lending companies approved loans to businesses with lower than normal credit ratings without approving the relevant paper work, in this case the majority of subprime lenders went out of business due to poor credit management. The Federal Housing Administrations loan program insures lenders meaning that they are more lenient and allow people mortgages with lower credit scores. The downsides of this system is that they require higher insurance payments for the duration on the credit period, this indicates that there is a small price to pay for people with lower credit scores.
There are also special programs to help people in different circumstances overcome bad credit mortgages, for example the FHA run a back to work program, this allows borrowers to gain a loan in a shorter period after suffering things like unemployment, lower income and illness. This system is subject to personal circumstances such as financial position and previous credit record. It is free to see a lender who can personally decide whether you will meet the requirements of the loan and how to prepare for the application process.
As you can see bad credit mortgages do create some barriers for borrowers yet they can be easily resolved with wise money management. There are some very useful schemes in place to help those affected by illness, unemployment and lower income etc. These give those people with lower credit scores a better chance to get a mortgage. Find out more about bad credit mortgage opportunities on our website.