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Home Loan Bad Credit
"No Credit, no problem". You've probably heard that a hundred times. But what if you have bad credit? Yes, there are many mortgage brokers that will work with you even if you have bad credit. But at what cost?All loans are determined by credit scores. The following table is a guideline for subprime conventional loans.
|
Credit scores |
Loan to values |
Down payment required |
|
600-620 |
100% loan to value |
100% financing |
|
560-580 |
90-95% loan to value |
5-10% down payment |
|
550-560 |
85-90% loan to value |
10-15% down payment |
|
535-550 |
80-85% loan to value |
15-20% down payment |
|
500-535 |
80% loan to value |
20% down payment |
Also, the lower your credit score, the higher your interest rate will be. The following is an example of how much your credit score can affect your mortgage payments:
| Your Monthly Payment | Total Interest (loan life) | Average Monthly Interest (loan life) | |
|---|---|---|---|
| Good Credit Mortgage | $699.21 | $151,717.22 | $421.44 |
| Poor credit Mortgage | $952.32 | $242,836.42 | $674.55 |
You can clearly see that having bad credit can cost you thousands of dollars. It truly does pay to have good credit. Unfortunately that is not a reality for the majority of American consumers. Establishing good credit can be quite challenging; but maintaining it is even harder. You must manage your financial affairs to a tee and know what practices help or hurt your credit. If you have sub-prime, or just downright bad credit, there are steps you can take to remedy the situation.
How to improve your credit score:
Here are a few simple guidelines to follow if you want to improve your credit score:
Pay all of your bills on time.
Late payments can really damage your score and can be listed for several years.
Close unnecessary accounts
Too many trade lines, especially ones that have balances, can hurt your credit. The more open accounts you have also leaves you more vulnerable to fraud. A word of caution; be selective as to which accounts you close. Older accounts should typically be kept open. Even if you haven't used the account in a while, the longer it has been open will demonstrate a more established credit history. You may consider using these accounts lightly every few months and paying off the balances when they come due. You will thereby maximize the benefits of your older accounts.
Hold off on applying for credit
You do not want to apply for credit while you are trying to repair it. You will not be able to qualify for favorable rates and terms until your report is in better shape. You will also be adding more damaging inquiries. If, however, it is absolutely necessary to apply, follow these guidelines:
- Do not open any accounts before you read all terms and agreements. Even if you close the account immediately it affects your score by listing too many trade lines not to mention you now have another inquiry on your report.
- Do not apply for cards that charge high interest rates, annual fees, and high over limit fees.
- Make sure the credit issuer reports to the CRAs
Pay off or reduce your credit card balances each month
Do not get maxed out and keep your debt ratio low. It is important for credit issuers to report credit limits to the bureaus. If they don't, the bureaus will take the highest amount that has been charged and use that as the limit. Let's say you charge close to that same high amount each month. It will look like you are charging close to your limit each month. If an issuer is not reporting the limit, simply request that they update this information; most will comply.
It is good to have a wide gap between the credit available to you and what you are actually using. A good rule of thumb is to keep your balances at around 30% of your total available limit.
Be careful when giving access to your credit history
Not only are you compromising your privacy but you are opening yourself up to becoming a victim of identity theft.
Let your credit sit
Inactivity can be good. Constant balance transfers and inquiries can negatively affect your score.
Do not co-sign loans
Even if your credit is to a point that you are eligible to be a co-signer, you are held responsible for these accounts if they go in to default.
There is still more you could do!
These are all great ways to improve your score but you will need to be patient. These tactics could take years before they produce substantial results. If you want to see quicker results, there are other measures you can take in addition to the ones listed above.
Contact Legacy Legal Services if you would like help improving your credit and getting the loans at the rates you deserve.
| Credit 101 |