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Is there a Quick Fix for Bad Credit when Getting a Mortgage?

18 August 2012

So many people go to their lender or their mortgage broker, knowing that they have bad credit, and wondering what’s available to them on the mortgage market. When they find out there’s very little, they then of course want to know what’s the quickest fix to their bad credit situation. Is there a way to fix your credit quickly so that you can get a mortgage?

Unfortunately, there just aren’t a lot of bad credit, or high-ratio, mortgages available anymore. Mortgage lending rules have become incredibly strict, and lenders have become incredibly wary of lending to unqualified borrowers. Because of this, unless you have equity in your home, you will have to start from scratch when it comes to fixing your credit.

That means paying down your balances on things like credit cards and lines of credit; typically lenders like to see no greater than 75 per cent of these loans being used. It also means catching up on all your late payments when it comes to all of your other bills such as cable, gas, hydro, and anything else you’re behind on. As long as you’re late on these they’ll appear on your credit report. And that will affect your ability to get a mortgage.

Of course, paying bills and catching up on ones that are late are probably not the quick fix you’re looking for. These will take time. However, if you have bad credit and it looks like there’s not a lot of hope, there is one thing you can do that might be a quicker fix than paying down debt (though you need to continue to do that.) The quickest fix you have is to get a copy of your credit report.

Credit reports can be obtained for free via snail mail, or for a fee if you want to download an instant copy. Once you get one, you need to examine it very carefully to make sure that there are no errors on it.

When most people hear this they think that looking for errors simply means looking for things that have been paid in full, yet still remain on the report. But there’s something else you need to be looking for, and that’s items that are older than 6 – 7 years old.

Generally most credit items, even if they’re overdue, have to be erased from your credit report if they have been on there longer than that amount of time. This doesn’t apply to all things, such as student loans, but for many things it does. Obtain your credit report, see what has passed the seven-year cap, and contact the credit reporting agency, as well as the creditor that put it on there.

All of these steps need to be taken if you don’t have equity and you still need to fix your credit. If you have equity however, that is, ownership in whole or part of real estate property, fixing your bad credit situation could go even faster.

By obtaining a home equity loan, you can receive a lump sum of as much as 65 per cent of your equity, the total amount of the property that you actually own. With that lump sum you can pay off all of your debt, contact the creditors to get it off your credit record, and then apply for the mortgage for another property. Or, just to clear your credit for when the time comes to refinance or renew.

While some ways of fixing your credit are definitely quicker than others, you’ll never fix your credit overnight, not even to get a mortgage. It still needs to be fixed though, and working slowly but surely to do it will eventually get you that mortgage you need.

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