School of Hard Knocks You Gotta Learn.
Apart from a steady income and money for a down payment, a lender will expect you to have a good credit history to qualify for a loan. The big factors are how much debt, and whether you pay your bills on time. Although most homebuyers are approved for a loan, for others, qualifying means taking a lesson from the "school of hard knocks," financially speaking.
Do You Make the Grade?
After receiving your credit report, a lender will typically assign a credit rating between an 'A' and a 'D.' If you hated getting a 'D' in school, just wait till you see what it does to the cost of your home loan. Fortunately, you're not stuck with a poor grade forever--homebuyers with a spotty financial history can generally rehabilitate their credit in a year or two.
Do You Juggle Your Credit Cards?
Most mortgage companies expect the average person to have some credit card debt. No harm in that, as long as you pay your bills on time, right? WRONG, it's a major warning sign if your cards are pushed to their limits, especially if you have little or no cash in the bank.
No Credit...What Then?
What if You Don't HAVE a Credit History?
Maybe you're at the other end of the spectrum. You don't use credit cards, or don't take out loans, so there's nothing to report on your credit report! What's your grade? Don't worry, you can still document your rent, telephone bills, or utility payments. If you pay those bills on time, that's something a lender has to consider.
Raising Your Grades
That's just a little homework to prepare for the School of Financial Hard Knocks. Now how do you raise your grades and improve your chances of getting a decent loan?
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