Home loans: Credit check
Your credit history affects your home loan application. But there are options available if you have a bad credit history.
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Lenders need to see proof that you have a good credit history so they know you can pay back the money you borrow from them. Your credit history could be the difference between getting a home loan and getting rejected. You can order your credit report for free today by clicking the link below, or read on to learn how you can improve your credit score or find alternative finance options as a bad credit borrowers.
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How does your credit affect your ability to access home loans?
When you apply for a home loan, banks and lenders check your credit file before you can get approved. Your credit file acts as a representation of your credit history and can include: unpaid bills, getting declined from a loan, late payments, if you have applied too often or if you have declared bankruptcy.
The lender will check your credit file and if you do have any negative marks, your options will be limited. All your past dealings with borrowed money are collected and is used as an indication of your future ability to make repayments.
Improving your chances of being approved for a home loan
There are a few different ways that can help you improve your credit file and chances of being approved for a home loan:
- Regularly check your credit file. Doing this will ensure that banks or lenders don’t incorrectly place negative listings on your file. It’s also an important step in safeguarding yourself against identity theft. Checking your credit file will ensure there’s no errors and if there is something wrong, fixing the errors will improve your chances of being approved for credit.
- Pay bills on time. Ensuring you pay your bills on time is one of the most simple ways to improve your credit rating and keep your file clean. You will also look like a responsible borrower to potential lenders.
- Consider debt consolidation. Debt consolidation is when you consolidate all your debts into one. It will make your repayments easier, as you will only have the one to worry about, and you can significantly reduce your interest. Getting in control of your debt can assist you in improving your credit history.
- Refinance. You may also want to consider refinancing. Making the switch may help you better manage your debt or find a more suitable home loan for you. You shouldn’t rely on refinancing as a way to get you out of trouble, however, it could potentially improve your chances of success when applying for a home loan.
- Don’t apply for too many loans. Applying for loans too often and being unsuccessful can hurt your credit rating. Making too many enquiries will raise red flags to lenders as it may indicate that you are irresponsible.
What are your home loan options if you have bad credit?
Fortunately, even if you do have a bad credit history, there are still some options available to assist you in successfully getting a home loan.
- Non-conforming lenders. A non-conforming lender will go outside a regular lender’s financial guidelines. This means, they may have different requirements compared to normal lender’s home loans. While these loans are an option for people with bad credit, they come with a few key differences. Loans from non-conforming lenders tend to be risky for the lender, this is why they often charge higher fees and rates to cover themselves.
- Wait for negative marks to be removed from credit file. Another option you have is to wait for negative marks to be removed. Your credit history doesn’t stay on file forever. In most cases, your credit file usually goes back to how it was within five years. If you are able to wait for negative marks to be removed, this can significantly help you when applying for home loans.
- Credit repair. Credit repair is the process of an agency refuting any incorrect listings on your file. If successful, you can have these errors removed from your credit history which, in turn, leads to a clean credit file. Keep in mind that this is an expensive process and there is no guarantee that listings can be removed, so be wary of any credit repair agency that claims they will be able to do this.
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