How Bad Credit History Affects Your Mortgage Options?
When it comes to getting a mortgage, you want as many options as possible. These options, however, are affected by credit scores and credit history. It is important to have a good credit score and history, as they allow you more options in financial situations. Mortgages are a big part of these financial situations.
You will have heard that you need a good credit score, as credit scores allow lenders and banks to see how reliable you are with making payments on bills and other loans. The banks and lenders want to see someone they can trust to continue to make payments even if there is a change in life situations.
Credit history is just as important as credit score, and bad credit history can seriously affect the options you are offered for your mortgage. You will have a credit history if you have ever had a credit card or loan from a bank.
Both credit score and credit history play a big role in mortgages and are connected to each other. We will look at this connection, and how bad credit history affects your mortgage options.
Credit History, What is it?
A credit history shows lenders your credit accounts. It will show how long each account has been open and if you owe anything. Credit history will have records of your repayment actions for loans and similar debts. If you have used any available credit, your history will show that too, along with any bankruptcies, collections, or liens. Credit history will show if you pay bills on time, or if you have loans, and even how many credit cards you have. Here is a list of what a credit history will have:
- If you pay your bills or loans on time
- All your loans
- Number of credit cards
- Any money you owe
- Social security number
- Your name and address
Why is a good credit history good for your mortgage options? This is because credit card companies and mortgage lenders want to see your credit history to see if you are dependable enough to be given a loan. Lenders and other creditors review your credit history by using the following factors:
- Recent activity
- If your repayments have been regular over a long period of time
- If you have any patterns of repayment
- If your credit accounts have been active and how long they have been open
The information in the history is used to calculate your FICO score (evaluates how worthy you are of getting credit.)
Bad Credit History and its Effect on Mortgage Options
As you can imagine, getting a mortgage can be difficult when you have a bad credit history.
Good credit history is created by paying bills on time and in a regular fashion. Lenders will see this and it will be easier to get lower interstate rates and better loans. You won’t have a large debt amount to carry around. It is a good idea to keep an eye on your credit history and if you see anything that doesn’t look right, have it checked out as soon as possible.
Usually, bad credit history is caused by not paying bills on time or if you have a large outstanding debt load. If you have missed any payments, use credit cards excessively, have ever declared bankruptcy, or had anything repossessed, it will show up in your credit history and affect it.
A few ways that bad credit history will affect mortgage options are:
- Trouble getting credit cards and other loans
- difficulty renting apartments and vehicles
- Issues with security deposit payments
Other ways your bad credit history will affect your mortgage rates are:
- Need insurance: mortgage insurance will probably be recommended. It covers mortgage payments each month if you become unable to make payments.
- High rates: you will be required to pay higher interest rates than those with a good credit history, on the same product.
- Few options: when you have a bad credit history, you are considered a risk to lenders who may be less willing to lend you funds.
Now, don’t lose hope. Even with a bad credit history, there are still ways to get a mortgage. You can fix your bad credit history by doing a few different things. First, stay calm. Check your credit score for any mistakes or anything that needs attention. Reduce your debt and pay your bills on time. If it helps, get a co-signer, who agrees to watch your payments if you have trouble. Stay away from getting new credit cards or loans for a while.
If you need advice on mortgages or what you can do to get one, always speak to a mortgage broker. Brokers are a highly recommended service for anyone looking for a mortgage. They save you time, energy, and money. Brokers are trained and have experience, as well as a wide variety of resources to use. They will find you the perfect mortgage for your situation and pocketbook. A mortgage broker will know where to look if you have a bad credit history.
What if You Don’t Have a Credit History?
For those without a credit history, you may find it difficult to get a loan or financing. Even renting an apartment can be difficult.
To start building a credit history, you will need to get a small personal loan or get a credit card with a low balance. You can also go and get a joint credit card, or secured credit card, with someone you trust. These ideas will create a history of you paying off debt, small scale, but something you can afford.
About Credit Scores
What is a credit score? This is a number that is calculated to show your suitability to receive loans and get financial help. It is based on your ability to pay off loans and debt in your past. A credit score is represented by a number that goes from 300 to 850. The higher your number is, the better your chances of repaying a loan with regular payments. Credit scores are calculated by using debt and repayment history, credit history, and open accounts information.
What do the numbers mean?
Excellent Credit Score: 800 and up
Very Good Credit Score: 740 to 799
Good Credit Score: 670 to 739
Fair Credit Score: 580 to 669
Bad Credit Score: 670 and lower
Poor Credit Score: 300 to 579
You can still get a mortgage with bad credit history, although it will probably take much longer than usual. Lenders look at downpayment size, the amount you have in collections, and any debts you currently have, as well as how much income you bring in. There are also options in loans, like the Bad Credit Mortgage Loan.
So, as you can see, if you have a bad credit history, it is not the end of the world. You can still do things to get a mortgage and improve your financial situation. By taking care of your bad credit history, you can change it into a good one and get better mortgage options. If you want to increase your mortgage options, make sure you work on your credit history. If you need help, contact us. We are always ready with advice and help.