Posted by Peggy Farber on 8/30/2017

Bad credit happens. Maybe you were late on some loan payments, or maybe you got a bit to swipe-happy with a credit card while you were in college. Or, maybe you were like many other Americans who took a financial hit during the housing crisis. Regardless, it can take a long time to recuperate from a bad credit score.

If you’re hoping to buy a home but have poor credit, it can seem like you don’t have many options. However, there are many mortgages designed with such people in mind.

In this post, we’re going to discuss some of the options for people interested in home ownership who have low credit and ways they can achieve this goal without taking on high interest loans.

First thing’s first: start prioritizing your credit

Even if you want to buy a home within the coming months, it’s always a good idea to start building credit. It does take several months to see a substantial difference on your credit report, but starting now will save you in the long run and will show lenders that you’re making a difference.

To give your credit score a boost in the shortest time possible, set all of your bills on auto-payment, repay and late bills such as medical expenses, and set up payment plans wherever needed. If possible, become an authorized user on someone’s credit card and use that for everyday expenses like groceries. Doing so will help you build credit without opening new cards that have high interest.

Many types of mortgages

Mortgages come in many shapes and forms. Since lenders are in competition with one another, you can often find loans that cater to underserved markets. In this case, that market is people with low credit scores.

Call some local lenders and ask if they have programs for people with low credit. Often they will point you toward first-time homeowner loans and USDA-guaranteed mortgages. Other times they might offer loans with high down payments. But, you’ll never know until you ask.

USDA and FHA Loans

Currently, USDA loans have a minimum credit score of 620. For FHA loans, lenders recently reduced the minimum score to 580. With these loans, you can pay a low, or no, down payment and still receive a mortgage loan.

The first step to getting approved for either type of loan is getting in contact with a lender to determine your eligibility. Eligibility is based on other factors such as your income, and in the case of USDA loans, the location of the home.

Other Options

If your score is lower than 580 or you don’t qualify for a USDA loan, you can still find other options. One would be to pay a higher down payment on the home. This would help ensure the lender that you are able to provide income to make payments in spite of your credit history.

Another option would be to reason with your lender of choice. Most of the application process comes down to numbers, but if you can show a lender that you have substantial, reliable income, and have been making rent payments for multiple years, these can both help build your case.




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Posted by Peggy Farber on 12/28/2016

Credit scores are complicated. There are numerous companies who calculate credit reports. What's more, those companies have different versions of their credit calculators, so any given person can have tens or even hundreds of different credit scores. In this way, credit reports can seem subjective or arbitrary. While that may be true, credit scores can play a role in which credit cards we receive and what loans we get approved for. And now some employers are even running credit checks on their potential new hires. Read on to learn all you need to know about what goes into your credit score.

Who's FICO?

The industry leader when it comes to credit scores is FICO. They set the standard and started releasing credit scores to lenders in 1989. Since then, however, a number of new names have entered the market like VantageScore and CE score.

How is my score calculated?

Your FICO score is broken down accordingly:
  • 35% - Payment history
  • 30% - Amounts owed (debt)
  • 15% - Length of credit history
  • 10% - Types of credit used
  • 10 % - New credit
  1. Payment history The most important aspect of your credit score is repayment history. It includes information on all of your payments (or lack thereof) and whether you were late or on time. It takes into account things like foreclosures, repossessions, and settlements.
  2. Amounts owed (debt) This section is complicated by the fact that having debt isn't necessarily a bad thing for your credit score. It includes your debt-to-limit ratio, the number of accounts with debt owed, and the total amount of debt across all accounts. If you're keeping up with payments and not hitting credit limits, this section can work to your advantage. Owning huge amounts and having poor repayment habits will certainly harm your score.
  3. Length of credit history Being consistent in paying off your debt over a long period of time can be reflected positively on your credit score. Similarly, if you have a very short credit history, lenders are less likely to approve you for what they see as potentially risky loans. This section also includes the amount of time you've had certain accounts and how long it has been since you used those accounts.
  4. Types of credit used If you have proven that you have successfully managed multiple types of credit (retail cards, credit cards, student loans, mortgages, etc.) this will reflect positively on your credit score. A lack of credit diversity won't win you any extra points.
  5. New credit Beware of opening several new cards or taking on multiple loans within a short span of time. It will raise red flags to lenders that you are having financial difficulties and are a risky borrower.

Build good credit habits

Credit scores are daunting and we often overlook them if we aren't in current need of loans. But like maintaining your health, it's important to take preemptive measures to nurture your credit score. Here are some good habits to build that will save you money and stress in the long run:
  • Check your free credit report annually
  • Set up auto-pay on credit cards and loans and keep an eye on your checking account to make sure it has sufficient funds
  • If you are in financial trouble contact your lenders and ask about your options. Going AWOL is the worst thing you can do on your credit debt
  • Keep credit card balances low and avoid opening several cards within a short period of time
  • Take advantage of free online tools like Credit Karma to calculate your debt repayment