How to Get a Loan With Poor Credit

[Anna Rupert]

If you have a poor credit record, you may be under the impression that
finding a home loan is out of bounds for you. However, the truth is
that by taking specific steps, you can place yourself in a good
position to get a home loan.
Before you do anything, however, the first step is to get a copy of
your credit report and find out exactly what your credit status looks
like.
One of the main factors a potential lender will consider is your debt-
to-income ratio, so take note of how much money you owe to creditors.
Also, see what other things are showing on your credit report. You may
discover that there are a host of small debts that are undermining
your credit score. Just by paying off all these minor items, you may
substantially change your credit status. Keep in mind, too, that some
debts are regarded as less problematic than others. For example,
medical bills have traditionally been frowned upon.
You may also wish to consolidate your debt. While the major
consideration for a lender is the total amount of money you owe, by
consolidating your debts into one, and making weekly or monthly
repayments to reduce this single debt, you'll show that you can and
will pay your debts. In so doing you will gradually reduce your debt-
to-income ratio and begin improving your credit score.
Meanwhile, there are also lenders that will lend to you despite a poor
credit score. They will typically require you to come up with a higher
down payment and will also charge a higher interest rate than most
banks. You may also be subject to more stringent loan terms. For
instance, most banks require borrowers to produce a down payment that
equates to 5 to 20 percent of the price of the home they intend to
buy. If you have a poor credit score you may be required to come up
with more.
In fact, the larger your down payment, the more apt is a lender to
overlook the state of your credit. This is because a big down payment
demonstrates how serious you are about the investment, and allows you
to obtain greater equity in the home, equity the bank can benefit from
if you are unable to make the required mortgage repayments.
Overall, it's certainly not impossible to get a loan with bad credit.
However, you are wise to take steps to improve your credit score by:
(1) consolidating your debts into a single debt and establishing a
track record of repaying that debt; and (2) coming up with a greater
down payment towards your home purchase.
By Nate Kennedy