Credit After Bankruptcy - A Few Tips

Bankruptcy is something that has both negative and positive effects on an individual. Even as it ruins the credit of a person, it allows him to start afresh on a clean slate. Many questions may arise in the minds of people who have been declared bankrupt, to which clear answers are not readily available. There are apprehensions about being able to once again live a normal life. Questions on the time before they can purchase a home next, credit rebuilding, hurdles in obtaining a mortgage or a refinance on an existing loan, amount of loan etc plague many people who have received a discharge. Here, we have tried to provide some information, which such people will find relevant to their credit status after a bankruptcy discharge.

People generally believe that they need to wait for at least two years before they can purchase a home or get a mortgage after bankruptcy and that no lender would loan them any money because they have suffered bankruptcy. Contrary to this belief, the fact is that there are a number of lenders who provide one hundred percent finance i.e. without any down payment, the very next day of your discharge.

The apprehension that even if the loan is approved, the deal may be structured very stringently and would not be worth availing with exorbitant rates of interest and other undesirable terms is also not entirely correct. Today lenders have come to understand that after a discharge your debts are either wiped out or very little. Bankruptcy is seldom repeated if ever and they act on the hope that their interests would be protected in the new home finance.

Normal lenders like banks and credit unions would probably not be able to process a loan right after a bankruptcy discharge. However, other lenders are now offering loans up to 100%, though on somewhat higher rates of interest in order to balance the risk. This allows you to go ahead with your plans, without having to wait for two or four years. With an improved equity situation, job status and credit ratings, you can later get a refinance on better terms.

For more help on rebuilding your credit, visit: Credit Report Sense - Free Credit Report Sources

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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.