It’s no secret that lending standards
have gotten tougher. It’s harder to qualify for a new home mortgage loan for
just about everyone, not just those with bad credit. It’s also more difficult
to crack into the top tier of credit scores that
would earn you the best loan terms.
So, should if you have less than
perfect credit, should you give up on approaching mortgage lenders? Of course,
not – but it definitely helps to have a strategy. It may take a little longer
to get a mortgage with fair or bad credit, but here are ten things to do to
overcome that bad credit and appeal to lenders:
1.
Make your credit and loan
payments on time. The first and most
important step toward overcoming credit problems is to change the habits that
led to those problems. Think of it this way: credit problems are part of your
history, and you need to start writing a new history. You do this by putting
together a track record which shows you are now able to consistently meet your
financial obligations.
2.
Understand your credit
problems. While you build toward the future, it’s important to understand
your past. Get a copy of your credit report to
see what the problems are. Identify what caused those problems. Were they
one-time mistakes? Do they indicate that you live beyond your means from time
to time and need to rein in your lifestyle? Or are your credit problems simply
a result of poor organization, of not keeping track of your bills and their due
dates? The more you understand about what caused your credit problems, the
better you’ll be able to address them.
3.
Address mistakes in your
credit report. Of course, there may be errors in your
credit report, and you’ll want to address these immediately. Approach both the
credit rating agency and the creditor who reported the error. When you feel
you’ve reached an understanding about what the true history is, be sure this is
confirmed in writing.
4.
Consider the length of your
credit history. Part of your problem in qualifying for
a mortgage may be that your credit history is not long enough. Time will take
care of this to some degree but use that time to assemble a track record of
responsibly handling a combination of installment loans and credit card
payments.
5.
Know when credit problems
occurred. If there are genuine problems in your credit history, keep a
record of when they occurred. Past credit problems may haunt you for as long as
seven to ten years, but they are given especially heavy weight in the first two
years. Once your problems are more than two years in the past, you may want to
try approaching lenders again.
6.
Control your credit
mix. Again, a mix of installment and credit card debt makes an ideal
track record (assuming payments are made on time), but be wary of adding too
many credit cards.
7. Pay down existing credit
balances. Even if you are meeting your minimum monthly payments, carrying
credit balances can count against you. Lenders look at how close you are to
your credit limit,
and that ceiling may have gotten closer–card companies have been slashing
credit lines to the bone.
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