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Tips for Buying a House With Bad Credit
What is a bad credit score?
A bad credit score is anything below 670. More specifically a score between 580 and 669 is considered fair and one between 300 to 579 is poor.
What are the roadblocks due to bad credit?
- Possibility of being rejected for loans and lines of credit. These can include buying a house with a bad credit score or getting a car loan, personal loans, private student loans, some federal student loans for parents and graduate students, and even credit cards.
- Difficulty getting a rental application approved. Credit checks are conducted by many landlords to evaluate your payment history, with an eye to whether you’re likely to pay rent on time.
- Required security deposits. Utilities like gas, water, and electricity would require you to make a security deposit when moving into a new home.
- Trouble getting a new cell phone contract. Before taking you on as a customer many wireless providers check your credit, meanwhile, some carriers offer prepaid plans and other arrangements that don’t require a credit check.
- Issues during an employment background check. As part of the background screening process, employers may view a limited version of your credit report. This could be to check and evaluate how you handle money if you’re applying for a financial management role. Even if they don’t see your credit score, but activities that lead to a poor score will be apparent on your credit report.
Higher insurance premiums in some states. Often car insurance companies, use information from your credit report, along with your driving history, to evaluate your potential risk of submitting a claim.
Let us understand the issues in buying a house with bad credit
If you have bad credit, lenders, and banks providing mortgage loans, credit card companies, and even car dealerships financing auto purchases, use credit scores to make decisions about whether or not to offer you a loan.
We can still work out and buy a house with bad credit
The very important point to note here is, it is a myth that you can’t get along with buying a house with bad credit.
Yes, you heard it right! It is possible to buy a house with bad credit, but you may end up with a high mortgage rate.
If your score is above 580, you can look into FHA loans, VA loans, and USDA loans so you are not deprived of buying a home with bad credit.
Do not worry if you are not getting approved for a mortgage, there are many ways to improve your credit score.
Following are the ways to fix your credit:
- Check your free credit score, to view the factors that are most affecting you.
- The payment history, meaning have you always paid bills on time or have had late or missed payments in the past.
- The rate of your credit utilization, how much total credit you have available, and how much of it you’re actively using.
- How long have you been using credit
- The mix of credit types you have had and are currently using.
- The number of recent credit accounts you have opened and applications you have made (hard inquiries)
- Look out for any errors on your credit report, including inaccurate personal information or accounts fraudulently opened in your name.
- If you are working with just your own credit then the possibility of buying a home with bad credit may not work. This is one of the conversations that really takes us back to partnering. You can get a loan with other people’s credit, which can be called OPC (Other people’s credit). Even though your credit has a limit and there is very little that you can actually do with it but you can still take action.
Pay Your Bills on Time
Payment history is the largest contributor to your credit score, it accounts for 35% of your FICO Score. Ideally, the best way to ensure you’re never late to pay your bill is to set up auto-pay for recurring bills.
Be sure to have enough money in your checking account so you can cover your payments, or you could land up with additional fees.
You can change the payment due dates with your creditors if you have many of your bills that are due on the same day of the month.
However keep in mind, for the change to take place it may take a few billing cycles.
So do not assume and miss the due date until you have a confirmed update.
Being upfront with creditors about your ability to pay is another important aspect.
Pay Down Debt
The next largest share after payment history is the amounts owed. It makes up 30% of your FICO Score.
The amount of your credit limit you’re currently using is expressed at your credit utilization rate, and experts recommend using no more than 30% of your credit limit at any point.
Pay off your credit card bill in full at the end of every month, if you can’t, and you’re currently carrying a balance, make a plan to pause using your cards and pay off the card debt.
You may want to spend extra money to the highest-interest card first, known as the debt avalanche method, which will save the most money in interest.
You can plan properly to get debt-free within the interest-free time frame. Otherwise, you’ll be subject to interest charges at the end of that period, potentially negating some of your savings.
Avoid new hard inquiries
If you’re focused on increasing your score, you may want to delay applying for new credit in the meantime. When a lender checks your credit to evaluate you for a financial product it is called a hard inquiry.
It will affect your credit score and will also appear on your credit report. The lenders could consider you a greater credit risk if you’re attempting to borrow money from many different sources.
Soft inquiries don’t affect your credit; they occur when you check your own credit score or when a lender or credit card issuer checks your credit to pre-approve you for a product.
It is possible that you won’t see a major effect on your score if you’re shopping for a single auto loan or mortgage and apply with multiple lenders in a brief time period.
Conclusion
So now we know that the higher credit score will more likely increase the possibility of you to qualify for the credit, and at better interest rates and terms instead of adjusting yourself to get a house with bad credit.
With a low score, it can be difficult to acquire affordable credit or to get approved for buying a home because of the bad credit.
You can think of maintaining good credit as a preventive way. You don’t know when something might come up, like a breakup that means having to find a new apartment fast, but good credit can help you handle any affliction with less hassle.
