Does Bad Credit Always Stand in The Way of a Mortgage?
posted in Mortgage News
When you make a late payment or default on a payment, the lender or creditor reports the information to the credit bureaus. Then, it’s included in your personal credit report, which can then be used to enable other lenders or creditors to make a more informed decision as to whether to extend you credit. If you’re applying for a mortgage and have bad credit, this can affect your ability to secure a loan, but it doesn’t always have to be a complete barrier.
There are many circumstances in an individual’s life that can affect their credit, and this can include any of the following:
Late payments
Accounting for 35% of your credit score, your payment history could affect your credit score, especially if you’ve delayed making payments for more than a month and the creditor has reported this to the credit bureaus.
Collection accounts
Third-party collection agents can be used by creditors if they’re unable to secure the necessary payments from a borrower, and most creditors go on to hire or sell the delinquent debt to debt collection agencies before or after charging off their account. Once this happens, the information is kept in the credit report, and without being repaired, borrowers are unlikely to receive credit from other lenders.
Filing for bankruptcy
If you’re forced to file for bankruptcy because you’re unable to pay your debts, this will have a significant and extremely damaging impact upon your credit score; the same applies for companies filing for bankruptcy. The information is recorded in the credit report and retained for between 6 and 7 years.
Charge-offs
An account that has become delinquent for too long is charged off by the creditor, meaning that they’ve given up trying to secure the payments from the borrower; this leaves a big, black mark on the credit report. However, when a charge off happens, the borrower still owes the balance to the creditor and they’ll no longer be able to make any purchases with the account.
Loan defaults
Treated no differently to an account charge-off, if you’ve missed more than one payment on a loan and haven’t paid at the end of the month, this is marked on your account, and the information is passed to the credit bureaus. Loan defaults will undoubtedly damage your credit reputation.
If you’ve got bad credit and are looking to secure a mortgage loan to buy a property, while it may be more difficult, there are lenders who will still consider you. However, finding them and knowing which ones will be sympathetic to your financial circumstances, isn’t always easy.
One simple and efficient way of finding a lender who may help you fulfil your dream of owning your own home, is to work with a reputable and experienced mortgage broker. With access to lenders you may never even have heard of, they can guide you to a solution irrespective of how poor your credit may be.