Are you afraid you can’t get a home equity loan because you have bad credit and won’t qualify for a mortgage? If this is your situation, you can be eligible for a loan mortgage, but you may have difficulty borrowing money with a reasonable interest rate.
For somebody with bad credit, being approved for an unsecured loan will be more challenging to get than getting a home equity loan. This is because a home equity loan is a secured loan; you have collateral that the lender can get if you fail on your repayments. The bank is more likely to take a gamble on your home equity loan application because they have your house as their security.
Generally, lenders will consider your credit as good if you have a credit score of 670 up. With these scores, you will get better interest rates and better terms as a whole because you have proven that you are a good payer. But if your score is 580 and below, lenders will see you as a high-risk borrower and have a hard time getting better loan terms.
If purchasing a home can wait for a while, you might want to consider raising your credit score first. If you do this, you will not only get more significant chances of getting approved, but you will also have better rates and loan terms in the process.
Here are some of the steps you can take to improve your credit score:
- Pay bills regularly and on time. If you can’t fully pay your balance in one go, try to make it a goal to clear off your credit as soon as you can.
- Don’t close your credit cards when you have fully paid your dues. If you have been burdened by your credit card debts for so long and finally you were able to pay your balance in full, the natural tendency is to cut your credit card in half and close your account. You might want to reconsider if you are thinking of doing this. Closing your credit card will cause your credit score to dip because it will reduce your credit utilization ratio. Better to have a small recurring payment monthly that you can afford to pay at the end of your billing cycle fully.
- Try to go below the 30% credit utilization rate to help you improve your credit score.
You can take some steps to help you improve your credit score. Lenders have different requirements for their home equity loan if you have bad credit, so better to talk to our officers to help you start your journey in owning your home.