May 15, 2017
For those who have low credit scores, say someone with a
score below 600, they may not have as many choices when researching mortgage
loans. Most loans today ask for a credit score of at least 620 but there are programs
that allow for an approval with a score as low as 580. FHA loans are a popular
choice for those with less-than-perfect credit due to the flexibility FHA
approvals offer. There still income and employment requirements and the lender
must verify there are enough funds in the bank to cover the down payment and
associated closing costs but those with bad credit don’t have to wait if they
don’t want to. There are possible alternatives.
For someone with bad credit and it was the result of an
isolated event or during a specific period of time, they do have options.
Lenders can evaluate a credit report and determine if the borrowers did have
something happen during a particular period of time if a series of late
payments are showing up around the same time frame. If however there are late
payments over an extended period without any external event that caused the
late payments, that’s a different story. Lenders are in the business of making
loans but they also want to be paid back on time.
Lenders adjust interest rates and loan approvals based upon
credit scores. If someone wants to get a better rate or are told they need to
get to a minimum score, there are two things borrowers can do that will have
the greatest impact in the shortest period of time.
There are five categories that make up a three digit credit
score. Those include the payment history, account balances, length of time
using credit, types of credit used and credit inquiries. Of these five, payment
history and account balances make up two-thirds of the entire score.
Concentrating on these two will cause scores to rise more quickly.
Payment history refers to the absence of any payments listed
on the credit report more than 30 days late. If there are such lates, scores
will be damaged. If recent payments are listed as being more than 60 or 90 days
late, scores will plummet. Borrowers must concentrate on making payments on
time and at minimum no more payments made more than 30 days past the scheduled
Available credit compares account balances with credit
lines. The ideal balance-to-limit ratio is approximately one-third. If a credit
card limit is $5,000, the ideal balance is round $1,500. Keeping balances in
check and making payments on time will cause scores to rise within a matter of
months and borrowers won’t have to take on a loan with higher rates.
For more information or questions about mortgage loans, please call (855) 757-8748.