There are any number of myths surrounding borrowers with bad credit. If you have a credit history that is less than perfect, you might feel uncertain about applying for a bad credit home loan – but you needn’t be. Here are some of the most common myths about bad credit to help you secure a loan.
1. Cutting up my credit card will improve my score
Many borrowers think that spreading their debt across a number of cards will improve the look of their history, but the opposite is actually true. The more cards you have lying around, the worse for your credit score – particularly if they have large credit limits with outstanding payments due.
At the same, cutting up your cards won’t help the matter. This doesn’t make the debt go away – in fact, you should focus instead on paying down the balance and not extending your line of credit.
2. Refinancing will solve my problems
While consolidating your debt can reduce the amount of interest you pay, it isn’t a quick fix to your financial problems. Rather than being a long term solution, debt consolidation is intended to help you get back on the right track financially, rather than stay with you for the long term.
In this way, it’s worth getting your finances back in order before you even apply for a loan. A lender will still require a certain level of comfort that you can service the loan over its lifetime, so it’s best to start working towards paying back debts. While lenders can often look past old defaults or blips in your history, more recent entries carry a greater weight. Get on top of smaller debts first, such as paying off your credit card balance and repaying missed utility bills.
3. A bad credit score will haunt me
A common misconception is that bad credit mortgages are ‘bad’ or ‘risky’ loans. However, there is really no difference in the application process for a bad credit home loan over a prime loan. Instead, the difference lies with flexibility. While conventional lenders have a strict set of criteria surrounding credit score, specialist lenders offer a more tailored solution. They generally have lower credit scoring standards and will work with your patchy credit history to find a suitable home loan option.