So, what do you do if your credit reports make you want to hide under the covers and never use your credit cards again? Relax, you can turn your ratings around.
Mortgage lenders look at the “age, ” dollar amount, and payment history of your different credit lines. That means opening accounts frequently, running up your balances, and paying on time or not at all can impact your credit score negatively. Just changing one of these components of your spending behavior can positively affect your credit score. Also, bad credit does not necessarily mean you can’t get a home loan, it will just come at a higher cost.
Why Were You Turned Down for a Loan?
If you are having trouble getting a loan, ask your lender why. Chances are it will be one of these reasons for rejection:
- Overextended credit cards: If you miss payments or exceed your limit, that’s a red flag to lenders.
- Failure to pay a previous or existing loan: If you have defaulted on other loans, a lender will think twice.
- Bankruptcy: Filed for bankruptcy in the past seven years? You might have trouble getting a loan.
- Overdue taxes: Lenders check your tax payment record.
- Legal judgments: If you have a judgment against you for such things as delinquent child support payments, it could harm your credit.
- Collection agencies: Lenders will know if collection agencies are after you.
- Overreaching: You might be seeking a loan outside what you can reasonably afford.
Fixing or Preventing Bad Credit
Having bad credit is not the end of the world. It still may be possible for lenders to give you a loan, provided your credit score is not too low. But be aware that you may pay a higher interest rate and more fees since you are more likely to default (fail to pay the loan back).
There are ways you can improve your credit score, such as paying down your debts, paying your bills on time, and disputing possible errors on your credit report. But on the flip side, there are ways you can also hurt your score, so remember:
- DON’T close an account to remove it from your report (it doesn’t work).
- DON’T open too many credit accounts in a short period of time.
- DON’T take too long to shop around for interest rates. Lenders must pull your credit report every time you apply for credit. If you are shopping around with different lenders for a lower interest rate, there is generally a grace period of about 30 days before your score is affected.
Finding Home Loans and Refinancing With Bad Credit
Even after you reverse the downward spiral of your credit history, you might need to tell a prospective lender that there may be some signs of bad credit in your report. This will save you time, since he will look at different loans than he might otherwise.
Fair Mortgage Collaborative is a non-profit organization created by the Ford Foundation and the Heron Foundation in 2007 to combat the abusive practices of predatory lending in the US home mortgage world. The company's main objective is to help consumers avoid predatory lenders and brokers, and enable them to obtain safe, fairly priced...
The Truth in Lending Act (TILA) of 1968 is United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
TILA also gives consumers the right to cancel certain credit...
The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement: Mortgage Discrimination, Research Methodology and Fair-lending Enforcement
eBooks (The MIT Press)