Bad Credit Home Loans
Loan Options for People With an Adverse Credit History
Obtaining a home loan when you have a bad credit rating can be difficult - an adverse credit history can mean that a lender may object to helping you out with any kind of mortgage at all. So what exactly can be done about this difficult situation?
Companies use data from your credit history to work out what is known as a FICO score. This score basically helps lenders to establish how ‘safe’ a borrower is likely to be, i.e. whether or not he or she is expected to be able to repay bills and credit on time, or whether to refuse the home loan for people with bad credit.
This form of credit scoring was introduced in the 1960’s by the company, Fair Isaac, and since then has continuously been accepted as the principal credit scoring tool for financial institutions in the USA.
Where mortgages are concerned, a low FICO score pretty much ruins your chances of approval, unless you are able to find a company that specializes in bad credit home loans.
How are credit scores calculated?
A FICO score is worked out according to a set formula which takes into account a lot of different variables, such as how well you repay your bills, how much money you are currently borrowing, what types of credit you have and how many different credit cards you have. All these factors are worth a specific percentage of your final credit score, and one that seems to be the sticking point for many is how long credit has been used for. This contributes 15% towards your final credit score, and for many, especially young applicants who have not been borrowing for very long, this is where they fail with home loan applications and other forms of borrowing.
Is there anything I can do about a bad credit score?Yes, you need to ensure that all current credit is repaid on time as agreed with the lender. You should also try to avoid borrowing money beyond your means as this can have a significantly negating effect upon your credit score and therefore your home loan application. If the reason for your low credit rating is that you simply do not have a long enough credit history, you need to boost your score by acquiring more credit. See our poor credit section for more information.