Lenders do not simply approve mortgage loan applications. Lenders also want to make sure that the money they will be lending will be paid back. Naturally, lenders would check on the borrower credit worthiness by examining their credit report.
What is a credit report and why is it so important?
Your credit report is your very record that reflects all transactions that you have between banks, lending companies and other financial institutions. Your payment history is listed in detailed within your credit report. By the law, mortgage lenders can use this document to check on an individual's background or credit worthiness. Thus, whether you have a good credit or bad credit can affect your mortgage loan application.
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How is Your Credit?
Obviously, if you're planning on applying for a mortgage loan, it will be better to take a look at your credit report yourself and see if your credit rating is good enough to be approved. You may acquire a tri-merged credit report from three major credit bureaus. Based on this credit report, you will also be able to obtain your credit score.
Your Credit Score
Generally, your credit score will be calculated through the Fair Isaac or FICO score. If your credit score is below 620, then you have bad credit. Most likely, lenders will turn down your mortgage application.
Mortgage Loans for Those With Bad Credit
Now, if you have bad credit, does that mean you can never apply for a mortgage loan? No. In fact, there are lenders who offer bad credit mortgage loans or home equity loans for those with very low credit scores. These lenders have easier guidelines with regards to an application's approval. However, the interest rate you'll get on your mortgage would likely be higher than if you had excellent credit rating. This is because lenders consider individuals with lower credit ratings as high risk borrowers.
Applying for A Bad Credit Loan
If you have decided on applying for a bad credit loan or a sub prime loan, consider various lending companies and compare their quotes before deciding on which particular lending company you will apply. Don't forget to ensure the legitimacy of the company by checking from the Better Business Bureau.
Why Not Raise Your Credit Rating?
If you can work on your credit rating before applying for a mortgage loan, then the better chances you have of getting approved and getting better rates. You can still raise your credit rating by paying the unpaid balances or settling accounts in your credit report. Also, never delay and never miss another payment with your transactions.
Furthermore, make sure that there are no erroneous charges that are reflected on your credit report. If there are, request that these false charges be corrected immediately. Notify either one of the major credit reporting agencies right away. See to it that you will be given a copy of more accurate credit report afterwards.
These steps will slowly raise your credit score in time. With a higher credit score you can assure that lenders will be most willing to grant you an approval and better rates on your loan.
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