Mortgage Loans for Credit Scores Under 500 - It's not Impossible

Until very recently many individuals hoping to own a home did not have a clear understanding of how their credit score could affect their ability to achieve that dream. Most people were aware that their credit score was rated as excellent, good, fair or poor; but millions had no idea that there was an actual numerical value assigned to their credit score and exactly what that number could mean to them when it came time to get a mortgage loan. Millions of people every year, however; try to obtain mortgage loans for credit scores under 500. While it can be a little more difficult when your credit score isn’t perfect, it’s not impossible to get a mortgage loan.

First, prospective homeowners need to understand exactly what determines their credit score and why these scores affect their ability to obtain a mortgage loan. Several credit bureaus around the nation collect consumer credit information regarding late payments, balances owed, bankruptcies and a host of other credit related data. This information is compiled under several categories; each one of which is assigned a number value. While the different credit bureaus do not calculate credit scores exactly the same way, they are similar. Timeliness of payments contributes toward about 35% of the consumer credit score. The total number of credit accounts a consumer holds makes up approximately 10% of the credit score. Another 15% comes from the age of the consumer’s credit history. In this regard, it’s not always best to have relatively new credit history. This also means it’s a short credit history with very little credit data to compare. Credit card and loans balances make up 35% of the credit score and finally the number of credit score inquiries during a given time period also contributes toward a portion of the consumer credit score.

There is no ‘perfect’ consumer credit score, however; most lenders consider 660 to be a good credit score to start with; anything below that number is in the danger zone. The danger zone refers to the area where lenders begin to feel they will be taking on more risk if they loan money to a consumer with a credit score in that number range. This indicates that the consumer may not be good at managing money and may be more likely to be late with payments and default on loans. To stabilize their risk, lenders may either refuse to loan money to loan applicants with credit scores under that mark or they may charge a higher interest rate.

Naturally, this can make it very difficult for consumers to obtain mortgage loans or even get loans in order to improve their credit scores and demonstrate their credit worthiness. Fortunately for consumers with bad credit there are many companies who understand this situation and offer mortgage loans for credit scores under 500.