Many people erroneously think that losing your creditworthiness and having a bad credit score is a financial death sentence. This fallacy is strengthened by the unending streams of personal finance advice on how you should play the credit game to avoid being burned. Most people think that it is practically impossible to make financial headway unless you have excellent credit; yet, nothing could be further from the truth.
Of course, good credit scores make it easier and cheaper for you to access credit because you’ll be a preferred borrower to lenders. Yet, the fact remains that some lenders usually go out of their way to provide loans with bad credit for people who might have made poor financial choices at one point or the other.
Bad credit is not necessarily the end of the financial road and you can take proactive steps to improve your creditworthiness. This article provides insight on four tips that can improve your odds of buying a home even with bad credit.
1. Make Time Your Friend
Time could be your best friend if you thinking about buying a home when your credit is poor. Your poor credit score automatically means that you’ll attract high interest rates on any mortgage deal you find. However, if you are not in a hurry and buying a home is a long-term goal, you can use the time between now and when you want to buy the home to repair your credit history.
Lenders are not only looking for excellent credit scores, they also want to see a consistent history of being financially responsible. Hence, even if you haven’t gotten an excellent credit score when you eventually want to buy a house, the improvements in your credit history could help you negotiate better terms.
2. Match Your Dream Home To Your Credit
If buying a home is a pressing concern and you don’t have the luxury of time, you can still buy a home even if your credit is weak. You’ll only need to tone down your expectation of what constitutes a dream home. Properties have different prices based on a number of factors such as location and events in the real estate market. Hence, lenders will be willing to provide you with financing if your credit score matches the criteria for the mortgage you’ll need to buy the property.
A credit score of at least 600 could get you an FHA loan and some lenders might approve your mortgage application even with a credit of 580. You can get conventional loans with credit scores between 620 and 679. Of course, the mortgages will come at a price – think higher interest rates
3. Resolve Credit Disputes
Credit disputes generally would make it practically impossible for you to get a mortgage. If you leave the credit dispute on when you apply for a mortgage, you’ll hurt your credit score because credit-scoring models tend to ignore accounts in dispute. Unfortunately, your credit score can also suffer a decline if you take the easy route to remove a credit dispute from your credit report.
However, reaching out to creditors to resolve credit disputes could make it easier to get a clean sheet on your credit report. You should also think about working out disputes with creditors instead of filing formal credit disputes.
4. Prepare To Make A Bigger Down Payment
If you happen to have more cash than credit, you should consider putting more money down than the minimum required down payment. A decent down payment could help make it easier for lenders to waive some of the credit-scoring requirements that could have reduced your odds of getting the mortgage.