Getting a Mortgage When You Have Bad Credit
Credit is a transaction involving two parties in which one party promises to the other party a certain amount of money or other assets and the other party accepts and agrees to pay that amount. It is a contractual agreement between two or more parties, regarding the conditions under which the assets or money will be transferred. Credit is similar to a promise but instead of a promissory note or contract, credit is an agreement that allows one party to give another party credit where the other party does not repay the credit directly, but promises to return or refund the assets at a later time. This type of credit is often used to guarantee funds for investments and other large purchases, because the return is often needed before the funds can be used. Credit can also be a method used by some companies to manage internal spending. Credit can be divided into three categories; open credit, revolving credit and specific credit.
Open Credit: An open credit account allows a person to spend funds however they see fit. A bank may allow you to withdraw the money from the account when it is needed. If you are looking to take out a mortgage, the bank will check your credit credibility, and if you have poor credit, you may not qualify. This type of credit is sometimes called trade credit because you are using a credit facility to make a purchase that you will then charge back to the bank. This type of credit may be the easiest to get since you can just withdraw the funds when you need them.
Deferred Payment Accounts: Deferred payment accounts (also known as non-revolving credit) are credit facilities where a bank will allow borrowers to set up a payment plan in which the borrowers pay only the interest on their credit account. The loan amount is set for a fixed period of time such as a month or a year. If the borrower misses a payment, the payment is deferred until the next month, allowing the borrower time to catch up. This type of creditworthiness is good for people with bad credit histories, who still have a reasonable amount of credit history.
revolving credit: A revolving credit account is another credit facility in which a borrower is allowed to borrow money at a fixed interest rate over a period of time. Once the period is over, the interest starts to build up. The borrowing may be done by simply borrowing money from another lending institution, or by taking out a personal loan from the bank itself. In order to obtain a non-recourse loan, which means that the bank does not have to worry about losing money if the borrower defaults, most banks and other lending institutions require proof of income.
Bad Credit Borrowing: Bad credit lending is very similar to revolving accounts, except that bad credit borrowers do not have a deferred payment option. Instead, they must pay the entire loan balance immediately each month and are not able to take advantage of any special offers that a revolving account may have. In order to apply for bad credit lending, the borrower must prove to a lending institution that his or her income is consistent each month, and that he or she has sufficient income to make payments on time each month. Lending companies and creditors will also consider the credit score of the applicant, as well as whether or not the person has filed any bankruptcies in the past few years.
Bankruptcy: One of the oldest tricks in the lender’s book, bankruptcy can effectively destroy a potential borrower’s chance of ever getting approved for any kind of credit. The lender will see this as an example of someone who has tried to get out from under debts and has not been able to. Because of this, it is usually only used as a last resort. On the bright side, bankruptcy is one of the most commonly used forms of consumer credit, which means that a person with a bankruptcy record should have little difficulty getting a mortgage or other type of loan.