Getting approved for a home loan is no easy task. Especially since the 2008 housing market crash, sub-prime loans almost disappeared. Reaching the moon or getting a star named after you is easier than getting a loan. What makes it a 100 times worse is if you have a bad credit score. A bad credit score basically makes it impossible for you to get a loan. All the late payments you made, everything you owe the bank and your casual attitude money eventually catches up to you in the form of a bad credit score. Aside from the calls from lenders, it won’t bother you until you actually plan to apply for a loan with a poor credit score.
However, we can’t chalk this up as impossible just yet, because there are some things that you can do for damage control. You might not reach your goal immediately, but you will reach it. In other words, there is still a chance for you to get a loan even if you have previously been rejected due to your bad credit score. It is not an easy process and there are no shortcuts to it, but we promise you that it can be done.
The first step to this is by understanding in better detail, what a credit score is, how it is impacted and how can it be improved. After which we will explore all the other options you have.
Here is everything that you should know if you want to get a mortgage with bad credit:
What would be considered a bad credit score?
Knowing how bad your credit score is essential if you want to apply for a loan now or if you need to wait a few months. Get your credit score checked; there are some free options available but our recommendation would be to get your credit checked from FICO.
What is the basis for calculating your credit score?
There are five things that are taken into consideration when a credit history is calculated, which are:
- 35% of your credit history is dependent on your payment history that primarily depends on how soon you are making payments and if you have any missed payments
- 30% depends on how much you currently owe your creditors
- 15% depends on how mature your credit profile is or how long have you had credit. If you have an established profile then your credit score is likely to be higher.
- 10% is dependent on how many new credit accounts you have opened recently, as the more credit accounts a person opens, higher the risk it becomes for lenders.
- 10% of your credit score depends on how well-balanced the mix is between your installment credit and revolving credit
How can you improve the credit history?
If you have poor credit score then you will be rejected for a loan, especially in today’s market. Thus, the only option (and safer option) you do have, other than going to a loan shark, is improving your credit score. The only way to do that is by making payments on time and reducing your debt.