Bad Credit Mortgage Tips: the Hard Facts of Rebuilding Your Credit

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Maybe it was too much credit card spending or maybe it was a medical emergency and you were late on bills--now you have bad credit so what do you do about it?

Rebuilding Your Credit to Qualify for a Home Loan

Qualifying for a home loan with bad credit isn't impossible. In fact, it might be easier than you think. The first thing most people think of is to close accounts, especially credit cards. Others think that debt consolidation is the answer, but these steps don't always take you in the right direction.

The Secret to Bad Credit Repair

When applying for a bad credit mortgage your credit file will come under close scrutiny. One of the major factors into how your credit score is calculated is payment history. If you go and pay off an account and close it then guess what? You're killing off a line of credit with a payment history. If you take a couple credit cards and consolidate them to a new credit card account in order to get a lower rate you've killed off a steady payment history and replaced it with one that has no history. This move can also be bad in that it could boost your average balance. Bottom line? Unless you have a ridiculous number of cards, closing your accounts is probably not the answer.

Qualifying for Your Bad Credit Mortgage

Here are the top tips for rebuilding your credit and qualifying for a bad credit home loan:
  • Keep your accounts open, but keep the balance below 50% of the credit limit.
  • Pay all existing bills on time--simple, but there is no substitute for establishing good habits!
  • Write a letter of explanation for any late payments or delinquencies in the past 24 months.
  • Make sure your credit report is accurate. There may be inaccurate data on your file causing unnecessary damage.
  • Don't open any new accounts
Follow these steps and you should be on your way to qualifying for the home loan you want, despite your bad credit.

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