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Bad Credit Home Loans
It depends upon your definition of bad credit, but getting a home loan for people with a bad credit history can be difficult. A couple of late payments here and there, provided it doesn’t become a habit is unlikely by itself to be a major hindrance to obtaining credit. Having defaults on the other hand or worse, bankruptcy is likely to hinder your lending style. Even making too many credit applications can give you a poor credit score especially if you make a few in a short period of time.
Credit scores are increasingly performed automatically with information about your credit profile, applications, payments, late payments and defaults all listed and “scored”. In an effort to automate as much as possible banks are using credit scoring as a quick and effective way to determine liability and risk.
A credit score is essentially a “history” of your credit profile. This history is used to determine your future risk to an organisation. The good news is that it is exactly that, a history and does not mean you are stuck with that for life. In fact your credit history revolves every five years. Nothing is permanent.
There is a market for bad credit home loans. More people than what you would expect have bad credit. Again, bad credit is a relative statement. There are ways to obtain a home loan with a bad credit history. If you do have a poor credit history there are ways to solve the problem and get that house you’ve been looking for.
Here’s some ways to get a home loan if you do have bad credit.
Apply to a Specialist Lender
There are plenty of lenders who specialise in impaired or bad credit home loans. More people than what you think have impaired credit. There is quite a market in this area and it is highly specialised. One thing’s for sure – don’t expect this credit to be cheap – it isn’t, there a good reason for this, people with bad credit are seen as higher risk. It all depends on how risky you are seen as being. A few missed payments are not likely to mean much in terms of getting credit. Where it does get interesting is defaults and judgements. This is where the interest rate really ratchets up.
Think carefully before heading down this path, you really need to have a good reason to take this sort of finance out, and your application will be heavily scrutinised. That doesn’t mean there are good reasons why you shouldn’t take this type of finance out, more, you need to think carefully before venturing down this path.
Having a lower than normal LVR (loan to valuation ratio) will also improve your chances of getting a bad credit home loan. Specialist lending in this field review at a number of risk factors, LVR is one of them. Being well under the 80% LVR magic number will do your chances the world of good.
The good news is that specialist finance is typically only short term. Specialist financiers know this, and it explains why in part this type of finance is more expensive than “prime” finance or mainstream money. Typically borrowers take this type of finance for a relatively short period of time, usually up to about two to three years. Providing you have paid the loan off as required your credit history in most cases will have improved to the point that you can apply for mainstream finance through a mainstream lender.
Demonstrate You Have Changed You Ways
It’s not as simple as three Hail Marys, but confessing your sins and demonstrating you have improved your ways might just get you over the line with regard to mainstream lending. Remember your credit history is exactly that – history. While banks tend to use these scores as predictors of future behavior, a demonstration that this is not the case and you have mended your ways will improve the situation.
Being able to show a prospective lender that you have paid off outstanding bills and improved errant ways will go some way to getting you what you want. Every lender looks at these things in a different way so you need to tailor your approach. Many brokers will be able to assist with this approach as they have good knowledge of how banks and other organisations approach applications for credit.
Go Proactive on Your Credit Score
Plain and simple your credit score could be wrong. There are literally thousands of examples of where credit scores actually do not paint the right picture. Organisations specialise in improving this situation, and you could benefit from this. Consider carefully employing one of these organisations to research your situation and improve your credit score. Many marks on your credit score could actually be mistakes.
Before using a credit repair agency have a go at fixing it yourself. Your credit report is a freely available document that organisations like Veda are legally required to provide you. Once received you are freely able to challenge any data that is contained on your credit report. Credit repair agencies can be expensive and in many cases you can do the work they provide for nothing.
You’ll be surprised at the results. Common mistakes on credit reports include listing a late debt, but then not listing the fact it has been paid. Other common errors include legitimate disputes of amount where you have been listed as not paying a debt which you have reasonably disputed.
Shop Around or Go to a Broker
Making too many applications for credit will also provide you with a bad score. When shopping around get a decision in principal making sure your credit file is not accessed.
Every time your credit file is accessed there is a mark left on it, so when shopping around for debt clearly explain your situation and you’ll be surprised what people can do to help you. The days are long gone where bad credit automatically meant no credit or worse you had no option but to use the dodgy backyard lenders.
Before applying for a bad credit home loan carefully consider your personal circumstances. Weigh up carefully the costs and benefits of applying for a bad credit home loan. It may end up cheaper to wait that little bit longer and let your credit score repair itself with the benefit of time. Certainly there is much you can do to assist that process, pay of any outstanding debts that are late, start saving and demonstrate to a prospective lender you are not the risk they read on paper