Advice on how to improve your credit scores. By Jeffery Simms!
If you have credit problems as a result of declaring bankruptcy or foreclosing on a home, or if your credit scores have dropped because of late payments or failure to pay, do not despair. Although a good credit score can drop very quickly, at times taking a hit of as much as 150 points or more, it is possible to improve your credit over time and to qualify for a new mortgage loan. Boosting credit scores is not the only means for people with deficient credit to get a home loan. The Federal Housing Administration (FHA), in an effort to promote homeownership, has made it easier for people with a damaged credit history to qualify for a mortgage loan. Under certain circumstances, people who have foreclosed or declared bankruptcy can obtain an FHA loan several years earlier than a conventional loan, and these people can buy a home with a smaller down payment.
Credit scores and lenders
Credit scores indicate to lenders how well you manage money. You can improve bad credit by demonstrating that you can now handle money more responsibly. Furthermore, since poor credit scores translate into high interest rates on home loans, an improved score will help you get lower interest rates when you are ready to qualify.
How to improve credit scores to qualify for a loan
Here are a few ways people with a negative credit history can raise their credit scores and ultimately obtain financing for a new mortgage loan:
- Improve payment history by making payments on time
- Do not open new lines of credit Use credit cards sparingly, and without overextending credit lines
- Make payments in full Have up to four different kinds of credit accounts
- Show evidence of steady employment for a period of one to two years
- Come up with a budget plan and stick to it
- Build up savings
Insider's tip: Credit experts advise not spending more than 25 percent of your available credit on any credit card account. If you have a $1,000 maximum in a given account, the balance should not be more than $250-$300. Better yet, wipe the slate clean and carry no balance whatsoever.FHA loans for people with a damaged credit history
FHA loans are loans the FHA insures against default, meaning that lenders are offered a guarantee that if the borrower fails to make loan payments, the debt will be covered by the FHA. Consequently, lenders are far more willing to extend mortgage loans even to people with low credit scores. Furthermore, FHA loans allow you to purchase a home with a down payment as low as 3.5 percent.
The downside is that FHA loans have relatively low limits, and that borrowers have to pay a 1 percent mortgage insurance premium (MIP) up front, and then a monthly premium for a full five years, even if they have built up sufficient equity. However, for someone with a blemished credit history, an FHA loan may just fit the bill.