Getting a Loan with bad Credit Contd.

Improving your credit

So what can you do if you’ve got bad credit? The first thing you should consider is making sure your credit reports are accurate and that you’re not being penalized for bad information. You’re entitled to receive a free copy of your credit report from each of the three major credit reporting agencies each year. Use the official web site, www.annualcreditreport.com , established by the three agencies to get your scores from Transunion, Experian and Equifax and check them for errors. You can also order your actual credit scores, but will have to pay a fee for that.

Don’t bother with so-called “credit repair” services which promise to boost your credit score in return for a fee. There’s nothing they can do for you legally to improve your score other than check your report for errors, the same as you can do, and some of these services have been known to suggest measures that can get you in trouble with the law – such as obtaining a new social security number.

Waiting for better scores

The best strategy for dealing with a bad credit score may be to try to improve your credit rating and apply for a mortgage at a later date. Generally, the impact of most negative items on your credit report begins to diminish after about two years, so if you can maintain a good payment record on your other debts over that time, your credit should show significant improvement over a year or two.

Of course, a foreclosure stays on your credit for seven years and a bankruptcy for 10, but even here, the major negative impacts begin to diminish after a few years, and you may be able to qualify for a mortgage again within three years of such an event.

Waiting means you won’t be able to take advantage of the ultra-low rates currently available, but you may find that by waiting for your score to improve, the rates you’ll be able to get with good credit in two-three years may be better than what you can qualify for today, even in the current low-rate environment.

If you need a mortgage now

If waiting isn’t an option – you need to refinance or buy a home right now – there are some options to consider. One is to get a co-signer, usually a close relative, to help you qualify. But bear in mind that in the event you default, the co-signer will be liable for the full value of the mortgage, so you only want to use this approach with someone you have a solid and trustworthy relationship with, and only if you are certain you will be able to meet your obligations.

Another possibility for couples, when only one partner has poor credit, is to seek a mortgage or refinance solely in the name of the partner with good credit. However, this means you won’t be able to list both persons’ income and assets on the mortgage application – just those of the partner who’s actually applying for the loan, which can seriously limit how much you can borrow.

Don’t assume that you have to borrow right now just because interest rates and home prices are very low right now. Whatever approach you take – borrowing now or working to improve your credit – should depend on careful assessment of what makes the most sense for you over the long term.