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Mortgage Solutions for Applicants with Low & Bad Credit Ratings

Your credit scores have a direct impact on the interest rates banks, credit unions and other financial institutions will offer.  The higher your score, the better the rate.  Late payments, poor debt to income ratios and defaulted loans all directly impact your credit score, so it pays to be very cautious when taking out loans, delaying payments or spending more than you earn.  FICO considers credit scores on these levels:

  • 760 to 850 (Excellent)
  • 700 to 759 (Very Good)
  • 660 to 699 (Good)
  • 620 to 659 (Good)
  • 580 to 619 (Average)
  • 500 to 579 (Below Average)
  • Below 500 (Poor/High Risk)

Today’s credit scores affect plenty in your life.  Your credit scores help dictate the amount you pay for homeowners, renters or automobile insurance.  They also plan an important role in the interest rates you are offered for all bank or financial loans.  In some jobs in accounting or banking, employers even look at credit scores to make sure the employee is financially responsible.

Credit scores range from 300 to 850.  A perfect score of 850 is virtually impossible to get.  Generally, those in the 760 to 850 range will be offered the lowest rates and best programs.  Payments will be smaller and application fees will be lower.  This is the credit score to aim for throughout your life.  You can do this by:

  • Watching how many credit cards you own:  The more cards you own, or even apply for, the lower your score will go.  Unbelievably, just having a company pull your credit report counts against you.
  • Paying bills early or on time:  Generally, payments that are a couple days late will not be recorded on your credit report, but if you pay bills late regularly, your credit score will take a hit.
  • Avoid gathering too much debt:  Your debt to income ratio is important.  If you have too many loans or credit cards, your credit score will be low.  Even if you are not using those credit cards, it is the total amount you could potentially run up that is calculated as your total debt.
  • Checking your credit report yearly:  It is not hard for others to get hold of your personal information and establish loans in your name.  Credit card fraud and identity theft are at all time highs.  You need to verify that information on your credit cards truly belongs to you.  If you find accounts of which you have no knowledge, report the account to the credit reporting bureaus immediately.
  • Being cautious after divorce or separation:  It is also common for a bitter spouse to take out credit cards or loans in your name during or after a divorce.  If this happens, make sure to report it immediately so that your ex deals with the consequences.
  • Cutting up and not using use credit cards:  If you must use a credit card, consider using American Express or similar cards where you must pay off the entire balance monthly.

A lower rate scale, 500 to 579, does not mean you will be automatically banned from getting a loan, it means you will be paying a much higher interest rate.  Generally, the best provider rates for high-risk borrowers are about double the rate offered to those with the highest credit scores.  If the current rate for those with high credit scores is 5.5 percent, you can expect your rate to be around 11 percent.  Compared against credit card interest rates that are generally in the 20 to 30 percent range, 11 percent is a definite improvement.

Scores below 500 are considered high risk.  Finding a mortgage or refinance loan is still possible, but you must do some research.  If your score is below 500, please be prepared to pay extra for application fees and  high interest rates.  There are companies who will want to work with you to help you get back on financial track.  Do not be afraid to be aggressive when approaching these companies.  You want the banks to offer you a loan that is affordable and will help you regain your financial freedom, not help put wads of your hard earned cash in the financial company’s pocket.

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