For most people, getting a home loan from a mortgage company is probably the most important move they will make in their lifetime. Those who are fortunate enough to have excellent credit will find the process relatively painless and straightforward.
Those whose credit is far from excellent usually find themselves in an uphill battle in getting a bad credit home loan.
If you fall into this second category, it may take a little work and time to get the loan, but it can happen! There are ways to repair your credit and get a decent loan with a decent interest rate. Understanding the major credit bureaus and what causes someone’s credit to fall can make a big difference. Once you understand what you are doing wrong, the easier it will be for you to clean it up so you will qualify for a mortgage!
The Three Major Credit Bureaus:
Equifax, Experian and TransUnion are the three bureaus that mortgage companies turn to for information on a potential home purchasers’ credit scores. Before the mortgage crisis that hit the United States, credit score around 640 to 680 was considered good credit. That rate has since gone higher to approximately 700. If your credit score is 700 +, chances are you will be able to get a loan. With a credit score of 640 to 680, mortgage companies might examine your situation a lot closer. Below that score is probably going to make it relatively impossible to get the loan you are hoping for.
In order to evaluate your credit rating the first thing you must do is obtain copies of your credit reports from these bureaus. You want to study these reports, carefully, to see what is keeping your score down. Here are some leading reasons:
Charge offs are loans that the loan holder gave up on trying to collect on and have reported them to the credit bureaus. In many cases, they sell these debts to debt collectors and wipe theirs hands of the loan.
See article from about.com
Companies, including creditors and lenders, have profits and losses every year. They make money from profits and lose money from losses. When a creditor charges-off your account, it’s declaring your debt as a loss for the company – because you haven’t make a payment in awhile. 1
Contact the original loan holder and see if you can work out a payment plan, if they still have your account on file. If you pay off the account in full, they should report this to the bureaus. Also, ask them for a written confirmation that the loan is paid and to remove negative information. You can submit this report to the bureaus yourself should the creditors not.
If your loan was sold to a debt collector, reputable ones will send you a letter giving you the option to pay off the note. Pay it off or work a payment schedule with them.
Late payments can be somewhat minor if there is a singular payment occurrence. Call your creditor and see if you can come to an agreement in alleviating the problem. If they will work with you, follow up with a written request for the singular payment to be removed from the bureaus.
If you have multiple late payments with a creditor it might be a little more difficult to get it off your report. If you are still making payments on this account, you must start making payments when due. Once you have created a positive on-time payment history, see if they would be willing to remove the bad score from your credit report. Again, be sure and submit a written request to them as well.
Bankruptcies are a completely different area of bad credit and quite complicated. You should talk to someone knowledgeable in bankruptcy law to see what and if you can clean this up. Usually, bankruptcy stays on your report for approximately 10 years or whatever the courts deemed appropriate.
Mistakes on Your Credit Report:
Mistakes showing up on your credit report is a lot more common than you might think. Creditors can accidentally report something to the bureaus that should not have happened. You might have disputed a charge and it was cleared up but is still on your report. In this instance, it is up to you to go to the credit bureaus and dispute the claim and see if you can get it dropped. The Fair Credit Reporting Act is in place to see that creditors investigate all reports of inaccuracies.
Inquiries – Having your credit pulled
Only get your credit pulled when it’s necessary. Inquiries don’t have a big impact on your score but they do have an impact. Especially, if you’re pulling your credit frivolously.
Now that you know poor credit will keep you from purchasing a home, put your best foot forward and clean up your act:
Make payments in a timely manner to insure your creditor is receiving payments on time.
Do not apply for new credit cards if you already have at least 3 open. Whatever credit cards you do have, make sure you make your payments on time and even if your balance is zero, keep that account open but lay off using it.
Pay with cash or with your debit card through your bank. A debit card is only as good as the cash you have in your account.
Your Mortgage Loan:
How much repair you have ahead of you, will determine how long it will take for you to receive a loan and what your interest rate might be. Go to your realtor and see if they have some suggestions to help you secure your loan. Most realtors have loan experts that can help you find a loan that will work for you.
Repairing your poor credit is not going to happen overnight. Stay focused and get your report cleaned up! In the long run, you are going to be glad you took that uphill climb because you will secure a loan!
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