Getting Mortgage Loans With Bad Credit: How Credit Reports Make The Difference

Everyone knows that obtaining mortgage loans with bad credit is not exactly a walk in the park. The issues that affected your credit past come back to haunt the application, and nothing is for certain. What is more, your credit report becomes the most important document in your submission. There are three credit report companies…

Everyone knows that obtaining mortgage loans with bad credit is not exactly a walk in the park. The issues that affected your credit past come back to haunt the application, and nothing is for certain. What is more, your credit report becomes the most important document in your submission.

There are three credit report companies operating in the US – Experian, Equifax, and TransUnion – and each of them will have your report in their databank. This is because all credit houses are obligated by law to report updated information to these organizations. Getting approval regularly poor credit history is dependent on providing a report from one (or all three) of them.

But when seeking a mortgage loan, exactly how important are these reports? We know that lenders spend up to 90 days looking at the figures and ascertaining the truth, but can they really have such a significance in the approval process? The answer is a definite yes.

How Lenders View Credit Reports

Getting your own credit report is useful, but remember that lenders will look at it in great detail. They want to know to what degree they are a risk should they approve your application. After all, anyone seeking a mortgage loan with bad credit is viewed as being more likely to default on the loan than someone with an excellent credit history.

But what do lenders see as important in a credit report? There are 5 areas that lenders look at, with a certain degree of importance placed on each. This means the information is weighted, and after considering their relevant influence, the lender may grant approval, despite poor credit history.

The 5 areas are: the payment history of the applicant; the amount the applicant still owes; the length of the credit history; the types of credit use; and finally, the number of inquiries or requests for new personal or mortgage loans. They are weighted 35%, 30%, 15%, 10% and 10%.

Strengthening Your Application

This information is extremely valuable when it comes to building a strong application, and maximizing your chances of securing a mortgage loan with bad credit. For example, knowing that the amount of debt still owed makes up 30% of their decision-making process, means improving on that area can help your cause very much.

Even your payment history, which has the largest impact on an approval decision, can be improved upon. It takes time, but if a consolidation loan is taken out, and repaid on time every month, then the repayment history is affected.

Of course, securing approval regularly poor credit history also means that basic qualifying criteria are met too. So, even after the individual elements of your credit history is examined, having a means to make repayments, and proving affordability are both key to getting the mortgage loan.

Considering Credit Restoration

With the significant role that a credit report plays in mortgage applications, having an accurate report is very important. The problem is that most of us simply accept the score that is quoted, so when it comes to getting a mortgage loan with bad credit, our bad credit is worse than it should be.

Through a process known as credit restoration, it is possible to have a credit score corrected to more accurately reflect your credit history. It is surprising how many debt clearances and repayments are omitted from a report, thus affecting the overall score. Without addressing this problem, the chances of obtaining approval consistently poor credit history becomes very slim.

Once a more accurate credit report is confirmed, then the terms of any mortgage loan are improved. Interest rates will fall and the repayment structure can become more manageable. Thus, approval is more likely.