What is Bad Credit and how does it affect you?

What is Bad Credit and how does it affect you?

Navigating the world of mortgages can be daunting, especially if you have bad credit. In today's financial landscape, the term "bad credit" is often thrown around, but what does it really mean?

Simply put, bad credit refers to a low credit score resulting from missed payments, defaults, or other financial difficulties. It's essentially a red flag to lenders that indicates a higher risk of defaulting on a mortgage. The two main credit bureaus are TransUnion and Equifax, and credit scores range from 300 (low) to 900 (excellent).

Imagine your credit score as a report card for your financial responsibility. Just like consistently missing homework assignments can lower your grades, missing payments or defaulting on loans and mortgages can lower your credit score. Bad credit can arise from various factors such as late payments, maxing out credit cards, bankruptcy, foreclosure, or even having no credit history at all.

How is your Credit Score determined?

Understanding the factors that influence credit scores is the first step toward improving them.

Your payment history accounts for the largest portion of your credit score. It is very very important to make timely payments on credit cards, car loans and home mortgages.

Credit Utilization may be an unfamiliar term to you, but it is the ratio of your credit card balances to your credit limits. It is important to keep your credit balance low compared to your credit limit. Having a $500 credit card and carrying a $400 credit balance for months at a time, will harm your credit score as even though the amounts are small, it shows bad credit management.

Mortgage lenders like to see two credit use like credit cards with a minimum credit limit of $2500 for a minimum of two years. A longer credit history generally indicates greater stability and will positively impact your credit score.

The harsh realities of having bad credit when it comes to qualifying for a mortgage.

Lenders will offer you a mortgage with higher interest rates to offset any perceived risk.

Most A Lenders, like banks and Credit Unions have a minimum credit score requirement of 650 or 680.

The lower the credit score the higher the rate you will have on your mortgage. With scores below 600, you will likely need to get a private mortgage. A mortgage from a private lender with rates in the 8 – 10% plus fees and you will be required to make a larger down payment. In some cases, lenders may require a co-signer or co-owner with a stronger credit history to approve your mortgage application.

Common Mistakes and Misconceptions About Bad Credit and Getting a Mortgage in Canada

Bad Credit Automatically Disqualifies You from Getting a Mortgage.

While having a low credit score can make it more challenging to secure a mortgage, it doesn’t mean you are ineligible. As a mortgage broker, I work with lenders who specialize in providing mortgages to individuals with bad credit, albeit with higher interest rates and stricter terms.

All Lenders Have the Same Criteria for Approving Mortgages.

Different lenders have varying eligibility requirements and may be more lenient or stringent when it comes to bad credit. As a Mortgage Broker, I shop around and compare offers from multiple lenders to find the best mortgage option for your financial situation.

Bankruptcy and Consumer Proposals.

While bankruptcy can have a significant impact on your credit score, it does not make it impossible to get a mortgage. There are lenders who are willing to work with individuals who have a history of bankruptcy, especially if they have demonstrated responsible financial behavior since then.

Credit Rebuilding is hard and takes a long time.

I have a very good easy to follow guide on rebuilding credit and have had numerous clients who, when the followed my instructions, rebuilt their credit quickly.

First Steps

Don't navigate the process alone! I specialize in assisting individuals with challenging credit histories to find tailored mortgage solutions that fit their needs.

Whether you're dreaming of owning a home or refinancing your current mortgage, I am here to help you every step of the way.

Take advantage of my expertise and schedule a free consultation today. During your consultation, I will  provide personalized guidance and actionable strategies to improve your chances of mortgage approval, even with bad credit.

As a bonus, we're offering a complimentary credit rebuild guide with valuable tips and insights on navigating the mortgage process with bad credit. Don't miss out on this opportunity to empower yourself with knowledge and take control of your financial future.

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