We are sure that you have heard that an individual has a low credit score, which is pretty
alarming, to say the least! For starters, it generally means that this person does not have a good history of credit and loans.
With that said, a credit score signifies an overall evaluation of how you have dealt with your loans, the number of accounts you currently own, whether or not you have met the loans on time, or any remark that you may have on the bank. All in all, it is like a report card that gives your lender a basic idea of what you are like as a loan taker.
A credit score basically determines all the decisions you are taking and will take and keeps varying from time to time. With that in mind, there are even conditions where you can not avail loan if you do not meet the lender’s range of credit score.
What is a Bad Credit Score?
As we already know what a credit score is, now you can have an idea of how these scores
signify your credit personality. Also, you may take it as your ‘Bank Avatar’ based on whether you may or may not receive loans from the lenders.
As you see that a credit score affects your banking personality big time. With that in mind, a low credit score falls within the range of 300-500. It usually defines that you do not have a good history of borrowing and paying back your loans on time.
How is your bank credit score calculated?
Your bank credit score keeps upgrading from time to time as you keep going through your
banking spree. It primarily depends on Payment history.
This depends on how fast or how long you take to meet the debt. In this, every nibble action of yours is taken into account.
Total Amount Owed
Your credit score also depends on how much money you have taken as a loan from the bank. More loan means a more severe hit on your credit score if you cannot pay the dues on time.
Length of credit history
This signifies the time you have taken to meet the loans.
Types of credit
There are many types of credits and loans that vary from time to time. It also depends on the rate of interest you are paying to the bank.
If you are taking loans upon loans without meeting the old ones, then your actions are also
counted. You can not just get away with it as will only add up to your burden.
In case you have already messed up your credit score and wondering how to fix it.
Here is the guide that you can follow to increase your credit score.
How you can elevate your credit score?
Anything that you do to elevate or degrade your credit score is calculated after you do it for about 6 months. So, it is a time taking process. If you can stick to the plan, it will be all worth it!
Pay on Time
Make a habit of paying off the bills on time. Do not put off the dates and try not to miss any due dates from now on.
Credit Repair Companies
If you think you cannot take up the charge of mending your credit score all by yourself, try
giving it up to a credit repair company who will do the work for you. It is better to pay some
money to a company rather than letting your boat sink completely.
Do not close your credit card account
There is a reason credit score is related to your credit card maneuvers. Do not close a credit card account, rather if you want to, just stop using your credit card.
Why bother having a high credit score?
Just as a report card shows how bright you are as a student, your credit card shows how you behave as a banking user. A high credit score can lead you lower rates of interest which in turn will be beneficial in the long run.
It is easier to get better lenders with a good, high, and trustable credit score. In short, a borrower has more benefits than lenders in most cases if you have a good credit score.
Can you buy a house if you have bad credit?
Well, you can surely buy a house even if you have a bad credit score. It may just need some prior tweaks before you may proceed. Right off the bat, it will surely cost you more interest for the loans as compared to someone who has a good credit score.
Please consider carefully if you really want to own a house at this moment, as it may come with many unexpected huge expenses other than high-interest rates too. So, look back once before moving forward.
8 steps to buy a house with bad credits
In case you still wish to proceed with bad credit, here is the best way you can do it-
Fetch a fresh credit report:
In order to make better plans that will suit you, you need to have blood work done on your
banking official actions and credit score. Have an accurate credit score and then furthermore you can make a plan to abide by. If you do not have your base clear, it will be a thorn in your throat later on. For the sake of revision, the credit scores range is –
Very good: 740-799
Poor: Under 580
You can plan according to your credit score once you have a fresh and updated report, and
proceed accordingly. In a nutshell, checking up on the credits gives you a proper insight
Pay off excess loans
If you already have a number of loans active at this moment while you are trying to buy a
house, please consider taking a step back. You may have an urge but it is for your own benefit.
Taking loans upon loans is not only bad for your credit score, but it also affects your future
actions in seeking emergency loans in future. Try to meet up some loans before you get into the trap of another one. The more loans you take at a time, the more hectic it gets and will be of no good in the end. Tackling your finances, especially when you have multiple loans involved is sure to keep you up at night.
High Mortgage Interest
You need to prepare yourself financially and mentally to pay off a high interest as you have a bad credit score. There is no way you can avoid that. As long as you have a bad credit score, you are ought to pay more interest, as the lenders are at high risk in case you fail to pay the leftover dues.
So, they decide not to take a risk and give you loans when your interests are at high stake! You can replan your interest rates when you have a better and higher credit score later in order to pay a low-interest rate.
These rates may vary by decimal numbers or smallest integral numbers, but over time, they sum up to be a huge chunk of money that you could have avoided paying or invested somewhere else.
Set up your budget
Planning is the key here. You need to chalk out every possible outcome and division ratio to have a crystal clear picture. For starters, you may set up a budget and buy a property owing to it.
You do not want to spend a huge amount of money on a posh huge property and monthly credits and end up being house-poor. Remember, a house is a necessity- but a large house is a luxury. Do not let your luxury take away portions of your other humane necessities.
Increase Down Payment
More down payments may sound like a drag but paying a little extra in the down payment
scheme helps you be tension-free eventually in the long run. There is no substitute for this. If you pay a good, say 30% of your whole mortgage money as a down payment at one go, the whole amount is reduced by 30%.
This means now you have to pay much less interest. It also takes away the tension of a few years from your valuable life as less money in EMIs means less time required to pay off the dues. For the record, lenders look out for the LTV ratio aka the Loan to Value ratio.
To put it simply, it is the ratio of the amount of down payment you are paying off to the amount you are putting off for further payments.
For instance, if you pay 30% of your mortgage amount as a down payment, you will have an LTV of 70%. Lenders love having a look at low LTV values as that means they are at lesser risk of losing more money.
Save up before it’s too late
Buying a house needs a lumpsum and more, even if you are just paying 10% as a down
payment. eventually, it will add up to be a huge chunk of money. So, consider saving for
through years as much as possible.
Try various saving schemes like a one-year deposit, 3-year deposit, monthly interest schemes, or governmental and non-governmental scheme options with good interest and outcomes.
It will all add up and help you to have a strong backbone while applying for a house loan. Furthermore, it will help you upgrade your credit score to higher numbers.
A VA Loan
The best way to take up a loan at lower rates of interest is to visit government sites and see if you can anyhow be eligible for the VA or the veteran Armed loans, instead of the loans provided by private banks.
For the record, VA loans are provided to individuals who are working in the army, service members, veterans, and surviving spouses. They have a fairly less amount of interest along with various other facilities.
The facilities may include a longer period of time to pay off, relatively lower rates of interest, less hectic rendering plans, and other subsidies that may seem not much but will affect a lot in the long run. Besides, you are at a lower risk of paying fines in case of any failures, so why not?
Finding a Co-Signer
In case you have bad credit scores, and the lenders are just not convinced to give you high amounts of loan, you have a Plan B where you can have a co-signer. A co-signer is someone who is the second priority to the bank in case you fail to pay the loan at times.
Suppose you fail to pay off the amount, it is your co-signers legal responsibility to pay off the rest finance. In most cases, a co-signer is a parent, spouse, or trustworthy friend. It is a legally binding contract, and both the parties, that is the co-signer and the borrower must have a clear picture of what they are binding themselves into!
With all things said, we now understand bad credit can be troublesome to deal with as it is the key factor in determining your financial background and can interfere in almost all the big financial decisions you take up. Besides, even if you want to take a step and upgrade your credit scores, it is a work of patience and you need to be consistent for a quite long period.
I hope this article gives you a crisp idea of what is a credit score, what are the determining factors, and how you can achieve a better credit score. Lastly now you know what are the steps you may need to consider before going all-in for a house loan with bad credit.
Always remember, “Adulting comes with a new set of problems every day, and maintaining a good credit score usually tops the list.”