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If You Have Bad Credit Can You Still Get A New Mortgage?

man holding multiple credit cardsLet’s say you’ve decided to downsize. Maybe it’s for budgetary reasons or maybe it’s because your children are grown and gone and you don’t need as much house. But what if you were late on a couple of payments on your current mortgage? If you will need a new mortgage for that smaller house, would you be able to get one?

The bad news

Unfortunately, if you have bad credit because you have late payments on your current mortgage, this will be a red flag to any lender where you apply for that new mortgage. It’s even worse if those late payments occurred recently. What also matters is timeliness. If you miss the grace period, this isn’t nearly as awful as if you were 30 or more days late. If you were 60 or more days late, this is even worse.

Learning where you stand

If you are late in your mortgage payments or any other payment this will already be reflected in your credit report. So if you want to know where you stand, you need to get your credit report from one of the three credit-reporting bureaus – Experian, Equifax and TransUnion. They are required to give you your credit report free once a year. You could contact one of the bureaus directly or go to the site www.annualcreditreport.com and get one or all three of your reports. Go over the report carefully to make sure that none of the information is erroneous. If so, you can dispute it with the credit bureau by writing a letter and attaching whatever supporting documentation you have. However, as the following video points out, there is also a reason why you might not want to dispute an error.

Your credit score

Next, you will need to get your credit score from one of the three credit reporting agencies or on the site. www.myfico.com. If you get your score from one of the three bureaus or from an independent source such as CreditSesame.com, it won’t be your true FICO score. But it should be close enough for you to know where you stand in terms of how credit worthy you are. This is fairly easy because credit scores are classified in ranges as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score.

If you were to find that you had a credit score of 520 or less, you would probably have a very hard time getting that new mortgage and if you did, you’d be hit with a much higher interest rate. As an example of this, if you had a credit score of 760 or above, you could probably qualify for an interest rate of 3.887% on a 30-year fixed-rate mortgage. In comparison, if your credit score was below 640, the best interest rate you could expect to get would probably be 5.476%. That 1.58% difference may not seem like much but would literally cost you thousands of dollars extra over the course of a 30-year mortgage.

As time passes

The only good news is that as time goes by, those late payments should have less of an impact on your credit score. If your late payments were recent, you’re kind of out of luck. When potential lenders calculate the interest rate on your mortgage they use what’s called “risk-based pricing.” This means a bad credit score will mean a higher mortgage interest rate because you’ll be perceived as more of a risk. Even with this, you should be able to find a lender who will provide you with a mortgage to finance that new house. If you apply to multiple lenders, make sure you concentrate those applications within two to three weeks. This will make it clear that you are shopping for a loan and won’t damage your credit score as it would if you strung out those applications over a long period of time.

One quick fix

While there’s not much you can do about those late payments, there is one quick fix you could do to improve your credit score and that’s to pay down your debt. One of the major components of your credit score is your debt-to-credit ratio. In fact it makes up 30% of your score. This ratio is easy to calculate. Just add up all of the credit you have available (your total credit limits) and the total amount of credit you’ve used. Then divide this by your total credit limits. Supposing you had total credit available of $10,000 but had used up $4000 of it, you would have a debt-to-credit ratio of 40%, which most experts say is too high. If you could pay down that debt to, say, $2000, this would yield a debt-to-credit ratio of 20%, which could give your credit score a nice boost. Alternately, if you couldn’t pay down your debt, you might be able to get one of your creditors to increase your credit limit, which would have the same affect on your debt-to-credit ratio.

If you pay off one of your credit cardscredit cards

One mistake you shouldn’t make is to close a credit card after you’ve paid it off. Another factor in your credit score is called your credit history or the amount of time you’ve had credit. When you close a credit card, this reduces your credit history and  will reduce your credit score.

How Bad Credit Could Keep You From Getting A Good Job

Upset man with hands on headIf you know about your credit report, you undoubtedly know that a poor one can keep you from getting new credit or cause you to pay more in interest charges. But did you know that a poor credit report could keep you from getting a job or even keep you unemployed?

Credit and the hiring decision

I have seen where people with great resumes were turned down for jobs and couldn’t understand why. I read one example where a very well qualified guy applied for for a job at a high-end men’s clothing store but didn’t get it. He eventually received a letter from the store explaining that it had run a credit check on him and had found information that played a role in its hiring decision.

Check that little box?

What this gentleman was doing every time he applied for a job was checking that little box that grants the potential employer the right to check his credit report. As a result, he kept getting turned down for jobs he was well qualified for.

Why credit reports?

Many employers now routinely check credit reports. Why is this? It’s because as the credit-reporting bureau Experian explains, “Credit information provides insight into an applicant’s integrity and responsibility toward his or her financial obligations.” You might disagree with this but if a prospective employer accepts this as a fact and you have a bad credit record, you could be in a world of trouble trying to get a new job.

The Catch-22

About 47% of employers use credit checks when making a hiring decision meaning that this could easily turn into a Catch-22. You lose your job, you get into financial trouble that appears on your credit report and this keeps you from getting a new job.

No room for explanations

One of the biggest problems with credit reports is that they leave no room for explanations. Your report might show you defaulted on a loan but it won’t show why. You could have a perfectly good reason for having defaulted but you might never have the opportunity to explain it.

Be proactive

If you’re job hunting you definitely should get your credit reports. You can get all three simultaneously on the website, www.annualcreditreport.com. When you review them and see you have a black mark (or marks) that could keep you from getting a job, be proactive. Discuss the issue upfront during your job interview – especially if you can explain what caused the problem and what you tried to do to solve it. Many prospective employers will appreciate your candor and might overlook that black mark.

Credit reports and credit scores

Credit reports and especially credit scores have seeped into our lives in many ways you wouldn’t expect. Some automobile insurance companies now routinely pull credit scores when calculating premiums. If you try to rent an apartment, the odds are good that the landlord will request your credit score. And, of course, mortgage and auto loan companies will use your credit score when deciding whether or not to loan you money and at what interest rate.

Get your credit score

You should also know your credit score. The website www.myfico.com will sell you it for $19.95 or give it to you free if you sign up for a free trial of its Score Watch program. You should also be able to get your score free from one of the three credit-reporting bureaus though you will likely have to sign up for something to get it.

If you have a poor score

If you have a poor or bad credit score (500 or below) there isn’t much you can do about it short term – unless you find errors that are affecting it negatively. If so, you could write a letter to the appropriate bureau and ask that the item (or items) be deleted from your report. You will need documentation to prove your case. But if you do, it’s likely that the negative items will be deleted and your credit score should go up noticeably.

Consolidation Loans With Bad Credit Score?

There are several ways to handle credit card debt problems when you have bad credit. One of the things that consumers can take comfort in is the fact that many people with credit card debt problems do have bad credit. That is why there are options available for people who have credit score issues. But are there consolidation loans available with a bad or poor credit score?

While there may be many options available, there is only one option that makes sense. People choose debt consolidation loans as their preferred way of handling overwhelming credit card debt. But there are several reasons why you should avoid consolidation loans and go with the better alternative of debt negotiation.

- The Problem Remains Intact

Debt consolidation takes your credit card balances and moves them from several accounts into one account. The step that is missing is the step that addresses the actual balance that you owe.

With a consolidation program, you do not start reducing your debt until you start paying on it. With debt settlement, the first step is negotiating payoff amounts on your credit accounts and lowering your debt to a fraction of what you owe.consolidation loans

- Credit Check Required

A debt consolidation loan is a standard loan that requires a credit check before you can get approved. If your credit is bad, then you may not get approved for a consolidation loan at all, or you would get approved for a loan with a very high interest rate (25 – 35% APR). Neither one of those outcomes works to your benefit.

Anyone can use a debt settlement program as there are no credit score requirements. A debt negotiation program is the ideal solution for people who have bad credit because your credit score has nothing to do with the way in which your plan is structured. The debt settlement professional is only interested in your credit card accounts and how they can be reduced.

- Costs

Any debt relief program is going to cost you money. But with debt consolidation, you will wind up paying loan processing fees, high monthly service charges and you will continue to pay interest on your credit card debt. If you add up the charges you pay on a consolidation loan, you may start to see that you are paying more to have the loan than you did to carry the separate credit card accounts.

When you find the right debt settlement company, you will only pay for the service when it is successful. Aside from a low monthly service charge, your monthly payment is based on your payoff balances. There is no extra interest added on to your balances, and you do not have to pay any loan processing fees.

- Time

One of the reasons why people with bad credit scores prefer debt consolidation loans is because debt consolidation companies spread out the loan payments over several years, up to 10 years and help lower the monthly payments. The problem with that plan is that you wind up paying interest charges on up to 10 years of consolidation loan payments.

A debt settlement program administered by an experienced and professional organization will take anywhere from 24 to 48 months to complete. If you apply some of the money you are saving every month by having your debt lowered, then you can pay that balance of on an even more accelerated schedule.

- The Full Process

A debt consolidation process consists of grouping your debt together, determining how much money you will need to borrow to pay that combined balance down and then shopping around to get you a loan. The debt consolidation organizations leave the possibility of the debt returning open by doing nothing to address the core debt and spending issues.

A debt settlement organization is a professional debt relief company that is experienced in helping people to get their debt under control and develop good spending habits. It is not enough to just move debt around and then add more interest to that debt by putting in into a loan. That does not help your process. With debt settlement, you get a full debt relief process that lowers your debt and teaches you how to avoid it in the future.

When people have bad credit scores, they sometimes feel forced to take bad deals with consolidation loans that have high interest rates and use high monthly fees. The truth is that debt settlement is a much better option for people with bad credit and a debt settlement professional can help you to reduce your debt in as little as 24 to 48 months.

We have experienced financial professionals on staff who are waiting to help you reduce your debt through the debt settlement process. Let our debt relief experts work with you to develop your comprehensive debt profile and develop a plan that will work. Pick up the phone and call us today to get started on the right debt relief program for you. Let us explain why consolidation loans with a bad credit score are not a smart way to pay down your unsecured debts.

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