When you apply for a home or personal loan, the first thing your bank will check is your credit score. A credit score or a credit history is basically a result derived from the analysis of a person’s credit files. In addition to banks, insurance companies, phone companies, and government institutions also use credit scoring to evaluate a person’s financial stand.
Why is Credit Rating Important?
When you fill in your application for a loan, the bank does not have any solid means to evaluate you in terms of your ability to repay the loan on time. So they use credit rating as a tool to determine how strong you are financially. For this, they do a complete analysis of your income, on-going mortgages, assets and take into account many other factors to assess you. This will provide the banks and other money lenders a clear picture of your monetary status. When you try to borrow money with bad credit, it is very likely that your application might be rejected.
Reasons for Bad Credit History
A person may end up with a bad credit score due to a number of reasons. When you miss your payments towards mortgages frequently, this can lead to bad rating. Laziness in paying the bills, poor financial situation and overspending are some of the major causes of bad credit. Different countries have distinct methods of assessing a person’s creditworthiness. A bank can deny the application of an individual requesting to borrow money with bad score. This is done as per bank’s policies in an attempt to protect themselves from people whose credit scores do not satisfy the set standards. To improve your credit score, you can talk to a consolidation firm for easy repayment options.
Home Loans with Bad Credit
Having a bad credit does not entirely disqualify you to obtain a home loan. You can still borrow money with bad score with the help of consolidation firms. If you wish to close a deal on a house you like, you do not have to worry if the bank rejects your application for loan. A consolidation firm will analyse your financial records and grant you loan on certain terms and conditions. Usually the person applying for the loan would have to pay a slightly higher interest rate than an individual who has a good credit rating. But as you make your payments regularly, there is a higher chance of your credit scores getting better. If you own an asset you can still borrow money with poor credit, since your asset will be used as collateral, not your credit score. This is called a secure loan. If you do not own an asset, then you still may qualify for an unsecured loan which is subjected to specific conditions.