Bad Credit Home Loans
For most home buyers, saving the necessary funds for paying a house deposit and various ancillary costs is the biggest hurdle in obtaining real estate. But what happens if you’ve managed to put together the money only to find a lender still won’t approve your application due to a spotty credit history?
A bad credit score needn’t be an insurmountable barrier to home ownership. If all other possibilities are closed, you can turn to the option of bad credit home loans to secure financing for your property goals.
What is bad credit?
All Australian adults who have ever had an account under their name or taken out a line of credit have a credit report. They are used by lenders to assess a borrower’s credit worthiness, helping them determine if they are reliable enough financially to lend money to.
The information contained in these reports is sourced from credit providers and compiled by credit reporting agencies, such as Veda Advantage, Dun and Bradstreet and Experian. Some borrowers might have credit reports with multiple agencies.
It’s important to note that credit reporting agencies don’t actually determine your credit score. Rather, your report will be independently evaluated by a lender, who will decide whether or not you’re a good prospect for lending.
Credit scores fall on a range between 0 and 1,200, with a higher number indicating a better credit worthiness. In general, any score above 600 is considered good, and vice versa. Borrowers with a score of less than 600 typically find it more difficult to secure a line of credit, particularly one as expensive and long-term as a home mortgage.
Credit reports are compiled using a number of sources:
- Debts – from car loans to credit cards, having a large amount of debt can hurt your rating
- Credit rejections – if you’ve been denied a line of credit in the recent past, this can negatively effect your credit score
- Outstanding bill payments – this is typically the most common source of bad credit
- Late payments – these are unlikely to be as harmful to your score as unpaid bills, but will still negatively affect your score
- Bankruptcy – a black mark from declaring bankruptcy will stay under your name for up to seven years, during which it can be practically impossible to get a loan
- Amount of credit enquiries – checking your credit score too often can make lenders more uneasy about lending to you
In the case of defaults and other credit infringements, it’s important to note that these have particular conditions attached to them. A credit provider can only list them if they have gone 60 days or more without being paid, the amount is $150 or more and the provider has contacted you to let you know you need to make the payment, either by phone or in writing.
If the creditor can’t contact you, then it will still be listed as a default. Credit defaults will stay on your credit report for five years, or seven years if it qualifies as a clearout. Even if you end up paying the default, it will remain on your report.
Unfavourable credit reports don’t necessarily mean you automatically need to think about bad credit home loans. Lenders typically look at a number of different pieces of information to determine if a borrower is financially solvent, and the size of the loan they’re eligible for, including:
- Annual income
- Any assets held under an individual’s name
- Employment history – infrequent, irregular or relatively short periods of employment tend to look discouraging to lenders
Nonetheless, a credit score is one of surest signs of a borrower’s reliability, and can trump these other factors. For this reason, it’s important to take good care of your credit history.
How do I take care of my credit score?
Before applying for a home loan, it’s a good idea to request a copy of your credit report. Under the Fair Credit Reporting Act, you’re entitled to request one free copy of your credit report every 12 months.
By checking it yourself, you can evaluate your own credit score before moving further with the loan process, and identify whether or not you’ll be eligible for a loan before the lender tells you. It also gives you the chance to make improvements to your credit score.
There are a variety of strategies to improve your credit standing. Of course, prevention makes for the best cure, so ensuring you make bill payments on time and keeping your credit card balances low is critical. Making an effort to pay down debt as much as possible can also help improve your credit score.
In addition to this, as of March 2014, an amendment to the Privacy Act allows credit reporting agencies and providers to compile positive information about your credit history too. This includes good credit behaviour, such as paying your debts and bills on time, and if you manage to recover quickly from adverse financial conditions.
Reviewing your report can also allow you to fix any mistakes which could be unfairly disadvantaging you when looking for a home loan.
If at the end of all this you still find your credit score lacking, you can always turn to bad credit home loans as a solution.
The case of Liam from Sydney
A few years ago, when Liam was still studying for his bachelors degree, he took out a hire purchase loan in order to furnish his new flat with all of the essential appliances – a new fridge, microwave, heater and so on. Pretty soon, as interest quickly built up on the loan, his debt became out of control and Liam defaulted on his payments. At the same time, since he was far less careful with his financial responsibilities when he was younger, Liam frequently paid his bills late.
He was ultimately able to pay down his ballooning debt and became much more organised around his finances. Still, he wasn’t the least bit surprised to find his credit report was somewhat unfavourable when he requested a copy.
Liam had ordered his credit report in preparation for starting to look at home ownership, but upon seeing it, wondered if this would still be a possibility for him. With one large default to his name and frequent late payments on bills, he expected lenders would balk at any home loan application he made.
Fortunately, the option of bad credit home loans was on the table.
A second chance with bad credit home loans
Everyone makes mistakes. The question is whether they should be judged on those mistakes for the remainder of their lifetimes.
Whether due to youthful indiscretion, financial hardship or numerous other reasons, it’s not difficult to imagine how an individual can end up with a bad credit score that makes a lender view them as a risk. Under typical loan schemes, a borrower such as this would be disqualified from purchasing a property, locking them out from a chance at the Australian dream property ownership – even if they might have improved their credit behaviour since.
Bad credit home loans are specialist products that provide a lifeline for individuals such as these. And by obtaining a slice of real estate of your own, you can put yourself on the road to a better financial standing, turning your home into a valuable asset and even use the loan to improve your credit score.
Bad credit home loans from Future Financial
At Future Financial, we know not all borrowers are suited to traditional mortgage lending criteria.
If your credit score is less than ideal, we offer bad credit home loans that will help you overcome any unfavourable credit history and take the next step on the property ladder.
Contact Future Financial now to find out your options.
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