You have probably heard that having a good credit score is important and that your credit score plays a big role in the type of financing you can obtain when it comes to your mortgage. Credit scores show banks and mortgage lenders how dependable you are with the financial responsibilities of being able to make and maintain your payments. It also shows banks and mortgage lenders the likelihood of you continuing to make future payments even if your life situation changes.
What is just as important is your credit history, and bad credit history can affect the mortgage financing options you will be able to obtain. What is the difference between a credit score and credit history? It turns out, they are connected, and you want to have both a good credit score and a good credit history. You can’t have one without the other. Our team of Mortgage Brokers at Brampton Mortgage Broker has put together this blog that will discuss how your credit history affects your mortgage options, especially if you have a bad credit history.
What is Credit History?
Your credit history shows records of your ability to repay loans and other debts. Credit history shows your credit accounts, and how long each one has been open if you owe any amount and the amount of available credit you have used if any. It also shows if your bills get paid on time and if you have had any credit inquiries recently. It will also show if you have any liens, anything in collections, or any bankruptcies.
credit history is important for your mortgage options. credit history is important because mortgage lenders and credit card companies will use credit history information to see if they will give you loans. Your credit history information is used to figure out your credit score rating. Lenders and creditors will review your credit history. When they do this, there are factors they will look for.
- How long credit accounts have been open if they’ve been active.
- Recent activity
- Patterns of repayment and if repayments have been regular over long periods of time.
How Does Bad Credit History Affect Your Mortgage Options?
Having a bad credit history affects your mortgage options by making it harder for you to get home. When you have a good credit history, by paying bills regularly and on time, you will find it easier to get better loans and lower interest rates. You won’t be carrying a large debt amount. Keep an eye on your credit history and have any errors corrected as soon as you notice them.
If you have bad credit, you will not have the same experience as those who have good credit. Typically, the way you get a bad credit history is by not paying your bills on time, having a large amount of debt outstanding, having multiple missed payments, having excessive use of credit cards, or having things like bankruptcy or repossession in your history. When you have bad credit, you will have issues getting credit cards, loans, rentals of vehicles, security deposit payments, and renting apartments.
Other ways a bad credit history will affect your mortgage options are:
- High rates: where most good credit history borrowers will pay a certain amount of interest, you may be required to pay higher interest rates for the same thing.
- Fewer Options: you are considered a risk by lenders so may have trouble borrowing funds.
- Insurance needed: you may need to purchase mortgage insurance. This insurance covers monthly mortgage payments in the event you are unable to make the payment.
Even with bad credit, you can still get a mortgage. It may take you a little longer, but it is possible. If you want to fix your bad credit history, you can do the following:
- Stay calm
- Check your credit score to see what factors need attention
- Pay bills on time
- Reduce debt
- Find a co-signer if needed.
You can get rid of your bad credit history by paying off debts, refraining from getting loans or credit cards for a few years. Although it may seem like a lengthy process, it is a tried-and-true method that works if you apply it correctly.
Also, using a Mortgage Broker is highly recommended. Mortgage Brokers can save you a lot of money, time, and energy. Let our team of Mortgage Brokers at Brampton Mortgage Broker are able to utilize our endless connections to find you the best mortgage for your financial situation. Our team of Mortgage Brokers will work with your bad credit to find the right mortgage lender and mortgage for you.
How Can You Create a Credit History?
If you don’t have a credit history, you can still have difficulty getting any financing. Renting apartments without a credit history can be difficult.
If you want to start a credit history, you can start by applying for a credit card with a small balance or a small personal loan. These are a couple of easy ways to build a history of paying off credit on a small scale. You can also get a joint credit card with a trusted person or a secured credit card and this will help in creating your credit history.
What is a Credit Score?
We’ve talked about credit history, and that included mentioning credit scores.
A credit score reflects a person’s suitability to get financial help based on reliability to pay back past loans and other financial responsibilities. It is represented by a number that ranges between 300-850. Credit scores use credit history, open accounts, debt and repayment history as well as other factors to decide the score. The higher the number, the more likely a person will prepay loans with regular payments.
If you are wondering what a ‘good’ or ‘bad’ credit score is, a score of over 680 is considered good, anything lower than a 670 is considered bad and 300 to 579 is considered poor.
If you have bad credit, you still have mortgage options. Lenders will look at your credit score, but they will also look at down payment size, any debts and anything you have in collections, and how much income you earn.
You also have the option of a Bad Credit Mortgage Loan.
As you can see, just because you have bad credit or bad credit history, you can still get a mortgage. There are things you can do to improve your situation so you can create a good credit history and get better options. No one wants to be limited when it comes to getting a mortgage, and our team of Mortgage Brokers at Brampton Mortgage Broker are here to help you. Contact us today so we can help you on your way to a mortgage.