Requires certain steps by consumers. Having credit - and good credit - gives you options, purchasing power and the opportunity to save a significant amount of money. Now more than ever, consumers are realizing the importance of establishing and maintaining credit. It's what lenders consider before agreeing to financing anything from a car to a home.
Having bad credit will greatly affect your credit applications, especially if you have filed bankruptcy. If you have previously owned a home, and maintained a good payment history, lenders may give you a loan following a bankruptcy. However, if you are a first time homebuyer, expect lenders to be leery.
You must first obtain a copy of your credit report to see exactly how potential lenders see you. Your credit history is reported to three credit bureaus and they may not reflect exactly the same information. Once you are aware of what is on your credit report and know your credit score, you will have a better idea of how "credit worthy" you are in the eyes of potential lenders.
If you have poor credit and want to purchase a home, you have a number of options to consider ranging from credit counseling to mapping out a plan that you can follow yourself. Before deciding on which approach is best for you, it's important that you understand your credit report and credit score.
If you're looking for a new home but have bad credit, you may be wondering what options are available to you or if you can even qualify for a home loan. Fortunately, yours is a common occurrence in today's consumer economy and mortgage lenders have created solutions for those with less than perfect credit.
Before you jump into any loan, however, there are a few things you should know.
In order to build and maintain good credit, it's important to understand the elements of a credit report and credit score. Understanding this and causes of a bad score is imperative to those who want to work on building a good credit history.
A credit score is a how lenders assess the risk of lending to you, and offers and the chances that you will repay them. This score is a number between 300 and 850 (a score of 720 or above will get you the best market interest rates). This score is determined by an evaluation of your experience with credit accounts. There are several things that might pull your score down. While most people know that late payments will hurt a credit score, they may not consider the impact of things like bankruptcy, foreclosures, too much debt, and any collections made on your accounts.
Too many open lines of credit can also hurt a credit score - even if you are not utilizing them. Carrying a number of credit accounts with balances to close to the high limit is another way to negatively impact a score.
If you have a low credit score and you understand the reasons for it, you can now begin working on fixing it. The process can be time consuming. You can also work with creditors and address negative reporting on your credit report.
Tips for building (and rebuilding) good credit:
* Review your monthly billing statements immediately upon receiving them and pay at least the total minimum amount due.
* Track your spending - keep receipts and write down expenses.
* Don't skip a payment. If you have problems making a payment, contact the lender to explore and discuss options that are available to you.
* Know the credit limit on your credit card(s) and don't exceed those.
* It's important to manage your credit and to do so wisely, do not budget more than 10 percent of your monthly income for repaying a loan or credit card balances. a few ideas:
* If you've had a recent bankruptcy, try going back to your creditors and working out a payment plan. Your credit score is definitely affected by the way you handle your financial obligations.
* If you have a lot of open credit accounts, pay off and close any ones you do not need.
* If you have several accounts with high balances, you might consider borrowing from one account to pay off another.
* Check your credit at least twice a year for accuracy - most people find at least one mistake on their credit report.
* If you move, remember to contact your lenders with your new address. Missed payments can have a negative impact on your credit history.
* Be credit smart - if you have credit cards, read the fine print in the terms of agreement and keep debt at a reasonable level.
* If you find yourself in over your head, call your creditors immediately. If you cannot create a plan on your own, contact a non-profit credit counseling agency such as Consumer Credit Counseling Service for assistance in managing your credit.
* If on your credit report, there are any incorrect 30-day late payment assessments, contest them. This type of assessment can cost you up to 100 points on your credit score! Finally and most importantly, make sure you are paying your bills on time and in full.
Increase Your Chances of Getting a Home Loan after Bankruptcy
Attempt to open new credit accounts immediately following a bankruptcy. When applying for a mortgage, lenders need to see some signs of credit improvement. Thus, you should wait at least one year before applying for mortgage loans. While a wait time of two years is recommended, if your credit improves significantly within a year, lenders may give you a home loan with acceptable terms.
During the period of rebuilding and increasing your credit score, keep credit accounts current. Defaulting on loans or receiving charge-offs following a bankruptcy is bad. In this situation, getting a home loan is practically impossible. While sub prime and high risk lenders are dedicated to offering bad credit mortgages, they will not give you a loan if you continue to be irresponsible in regards to credit.
Purchase Your First Home with a Down Payment
Applying for a mortgage loan with a down payment is recommended for first time homebuyers with a bankruptcy on their credit report. Saving for a down payment is difficult. However, it will raise your chances of receiving a good deal. Establish a budget. Lenders do not require large down payments. The average down payment for a home is about 3 percent.
Are you considering a second home or relocating to the United States?
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