According to statistics, nearly one-third of all Americans have poor or bad credit. Poor credit is considered as a credit rating of 500-600 and bad credit is considered 300-499. People with poor or bad credit have a more difficult time securing mortgages and auto loans. Here's what you can do to improve your chances of getting approved for a mortgage if you have poor or bad credit.
While getting approved for a mortgage is highly unlikely for people with poor or bad credit, getting auto financing is possible. There are lenders out there that will finance people with bad credit. However, when choosing a lender for an auto loan, be sure to choose one that reports payments to the credit bureaus and, of course, be sure to pay your payments on time.
Just because a lender provides loans doesn't mean that they absolutely report payments to the credit bureaus and, sometimes, they only report when you fail to pay. The reason you want to be sure that the lender will report when you make your payments is because it will improve your credit rating so you'll eventually be able to secure a mortgage.
Get a Secured Loan from Your Bank
Another way to improve your credit score is to get a secured loan from you bank. In order to do this, you'll need to save some money and use your savings to open a certificate of deposit or a savings account. Then, ask your bank for a loan using your savings as collateral, which means you will not be able to access that money, but the money will be used to repay the loan. The loan repayments will be reported to the credit bureaus by your bank, which will help to increase your credit score.
Ask Your Landlord or Property Manager to Report Your Rent Payments
Often, landlords and property managers do not report rent payments to the credit bureaus. In fact, according to FICO, less than 1% of files contain rental entries. If you are trying to build your credit, ask your landlord or property manager to start reporting your rent payments and be sure to pay your rent on time.
It's important to note that not all mortgage lenders look at line items that contain information about rental payments on your credit report, and there are several different versions of credit report which calculate scores differently. Therefore, when you are ready to apply for a mortgage, be sure to go with a mortgage lender that uses credit score versions that include rental payments to calculate the credit score, such as FICO 9, FICO XD, and VantageScore.