Mortgages are considered to be a tricky field and lenders prefer to give loans to people who have a good credit score. This is because a good credit score is a guarantee that repayment of the loan is possible. Therefore, people with a low credit score are often apprehensive when it comes to mortgages. Bad credit mortgages are definitely more difficult, but they are not impossible. Let us understand the process of getting a mortgage with a credit score that is not too good.
What does a bad credit score mean?
The bad credit score is a direct indication that you have had money-related problems in the past. It also signifies that you have had outstanding debts and have been unable to pay them within the stipulated time frame. Because of these reasons, getting a fresh credit is often very difficult for people who have bad credit scores.
How is an application for mortgage affected if there is no credit history?
The challenges while applying for the mortgage without a traceable credit history are almost the same as those when applying for bad credit mortgages. If you haven’t borrowed any money before, and have no track record of repayment, it is difficult for the lender to assess the risk of lending money to you. Therefore, both of these situations get the same rates of interest.
How can a bad credit score be improved?
If you want to improve your credit score, the first step is to clear off all outstanding dues and payments. Altering your spending habits is also necessary if you want to see an increase in your credit score. Use your credit card for small expenses but make sure that you never miss a payment deadline. Keep a track of all your bank accounts and close the ones that are not active. These are the few basic steps that need to be followed for improving your credit score.
How to increase your chances of loan approval?
This is difficult, but there are many known cases where applications got approved with a low credit history. Therefore, you should consider the following things in mind when applying for a loan with a low credit score:
- Try to generate records of steady employment and income. Applications with consistent employment history are much more likely to get approved.
- Submit your bank statements when applying for a loan. This is applicable to all your bank accounts.
- Arrange for a higher down payment if you want to increase the chances of your loan getting approved. Inquire about the available programs for assistance with down payments.
- Sometimes, hiring the services of a mortgage broker can ease out the process of bad credit mortgages and increase the likelihood of their approval.
It is more difficult for people with a low credit score to secure a loan. However, with the above-mentioned steps, it is possible to increase the chances of loan approval in this situation.