Overcoming bad credit barriers

There are many barriers to buying a home – and overcoming past bad credit is one of them for many individuals. Don’t lose hope; there are steps you can take to help with the challenges of securing a loan and working toward rebuilding your credit.

Can you get a mortgage loan if you have “bad credit”? Many times, the answer is yes – but you will have some tradeoffs.

The thing about bad credit is, no two people are the same; there are many varying factors. Securing a loan might depend on how much you have for a down payment, what your debt load looks like, your income and whether you have any debts that are in collections.

You will likely also pay a higher rate than a conventional mortgage. The lender you use will play a factor because all lenders have different requirements. Be prepared for a higher monthly payment because of the higher interest rate, but continually working to get your credit in shape will allow you to refinance at better terms later on. Do your research on loan options to see what type of loan will work best for you.

You might even choose to hold off buying until you have a chance to repair your credit.

How do you rebuild your credit? Begin by working on your credit score and credit standing. Nobody likes to hear this because it takes time and patience, but raising your score and improving your financial situation will give you better loan options.

Pay attention to your:

• Payment history – Paying your bills on time is essential because your history can account for 35 percent of your score. Make this a top priority!

• Available credit – The amount of your available credit that you are using matters. Work to start applying extra payments to debts to begin working those balances down sooner. Having fewer or reduced monthly debt payments helps your debt-to-income ratio.

• Income – Getting a second job or asking for that raise might be necessary if you want to speed up what you are able to pay off. Bonus: The extra income also helps your DTI ratio. Further, having at least a two-year job history is important for loan qualification.

Waiting it out is definitely the most challenging part. Necessary changes to your credit score will not happen overnight. Setting small, incremental goals will help keep you on track and help you see your progress.

Enjoy those small victories. Every bit of progress is getting you closer to your goals!

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Emily Mays is vice president/chief administrative officer at Community Spirit Bank in Red Bay, working in finance for 15 years. She is an enthusiastic social media marketer, financial literacy advocate and go-local supporter.

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