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It’s not hard to get a couple of blemishes on your credit report. Whether it’s the mistakes of youth or an unexpected medical procedure that puts you behind on bills, it’s easy to have your credit dip if you’re not careful.

If you have less-than-optimal credit, it’s more difficult to prepare to get a mortgage, but just because your credit score is suboptimal doesn’t mean you have to give up on your dream of homeownership.

In this post, we go over what it means have a low credit score, the difference between bad credit and no credit, and how to improve your score. Finally, we’ll go over the best loans for people with less-than-perfect credit.

Defining Low Credit

We can talk about credit all day long, but it doesn’t make much sense if you don’t know what to measure it against since you’ll have no idea where you stand.

The main credit scoring system used by most mortgage lenders is FICO. Scores range from 300 to 850. With a credit score below 580, it’s difficult to get a mortgage. While possible, you’ll have higher rates and less favorable loan terms. For the purposes of getting a mortgage, a low credit score would be considered below 580.

Low Credit vs. No Credit

Having a low credit score due to late payments or something like a bankruptcy is different from having no credit. If you have no credit, you need to do something to build it up before getting a loan.

If you have no credit and your score is currently at around 300 because you’ve never had credit before, there are a few steps you can take.

Secured Credit Cards

One good way to build credit when you’re first getting started is to get a secured credit card. With this card, you put down a deposit of your own money that serves as the credit line. As you charge things and make the payments every month, your score will start to increase. After maybe six months or a year, your score should be high enough that you can get a more traditional credit card where the credit card company is putting up their own funds based on their faith in your ability to make the payment.

Ordinarily, we don’t advise closing any credit lines because part of your credit score is how many lines of credit you have open that you can manage responsibly. However, secured cards sometimes come with monthly maintenance fees that you don’t want to pay forever, and you want your deposit back.

If you do choose to eventually close this line of credit, be sure to have a couple of other cards open and be aware that your score will take a temporary hit.

Become an Authorized User

You can also piggyback off someone else’s good credit rating by becoming an authorized user on their card. When they make their payment on time every month, your credit score goes up. This is a great way for parents to help their kids get started with good credit.

Understanding Your Credit Score

If you have bad credit due to past negative events, the first thing you need to do is know exactly what’s on your credit report so that you can know where you need to improve.

Our friends over at QLCredit can help you get your VantageScore 3.0 credit report and score for free from TransUnion every two weeks without affecting your score. This will not only show you what’s on your credit report but also give you ideas on where you can improve.

There are five main factors that influence your credit score:

  • Payment history (35%): On-time payments help your score, while late payments hurt.
  • Balances owed (30%): Your credit utilization is the amount you owe compared to your overall balance. The lower your credit utilization, the better your score.
  • Length of your credit history (15%): The longer you have your credit accounts open, the better.
  • Credit inquiries (10%): If you’re applying for credit or any kind of loan, it’s considered a hard inquiry and affects your score. If you apply for the same type of loan over the course of 30 days while rate shopping, it all counts as one inquiry. Also, soft inquiries on sites like QLCredit to find out what’s on your report don’t count.
  • Credit mix (10%): Another thing creditors want to see is that you have various types of loans and credit. You want to have not only a credit card but also a car or a personal loan.

Other items, like bankruptcies, judgments, collections and charge-offs, can also affect your score. These are bit beyond the scope of this post, but there are things you can do to take care of them.

Explaining Your Low Credit Score

Communicating with a lender during the process is important. If you know what’s going on with your credit, they may be able to help you come up with steps you can take in order to get your credit fixed and get qualified.

This will also help the lender set appropriate expectations for you. If you’ve had a bankruptcy or foreclosure in the past, there may be a waiting period before you can get a mortgage again. Whether you can get a mortgage or not, you’ll know what to expect going in.

Getting a Mortgage with a Lower Credit Score

If you have a less-than-perfect credit, probably the easiest loan to qualify for is FHA. You can get a loan with a credit score is low as 580, assuming you meet other qualifying factors.

If you have a credit score of 620 or higher, you can also qualify with a slightly higher debt-to-income (DTI) ratio – a measurement of the amount of your monthly income that goes to debt payments – of up to 55%, depending on the loan purpose and your other qualification factors. These are Quicken Loans requirements. Other lenders may have different policies.

It’s worth noting that if you make the minimum 3.5% down payment on an FHA loan, you’re going to have to pay mortgage insurance for the lifetime of the loan. With that said, you can always refinance into a conventional loan once your credit score gets to 620 or higher. On a conventional loan, mortgage insurance payments stop once you reach 20% equity.

If you’re still looking for tips, there are a variety of paths to rebuilding your credit.

If you think you’re ready to get started with your loan, you can fill out an online application. Otherwise, if you would like to get started over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716. If you still have any questions, you can put them in the comments below.

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This Post Has 31 Comments

    1. Hi Elaine:

      We could help you with a streamline or other type of rate/term refinance. You need at least a 620 before we can look at helping you take cash out. I’m going to recommend you speak with one of our Home Loan Experts. You can get in touch with them at (888) 980-6716. They’ll be able to go over your current options and help you with a game plan if you need to get your credit score up to look at alternatives.

      Thanks,
      Kevin

  1. Hi,
    My significant other and I are trying to get a mortgage but, we both have low credit scores. We, unfortunately, don’t have time to wait and build up our credit. We need to find a home as soon as possible. His parents are willing to take out a loan for us, but we were told they can’t unless they are living on the property, or they would have to put down 20% or more. Is this true, or is there any other way they can take out a loan in their name for us?

    1. Hi Amy:

      For your parents to get a loan for you, without living there, it would be considered an investment property. They would have to put down at least 15% depending on their credit. If they’re interested, they can get in touch with one of our Home Loan Experts by calling (888) 980-6716.

      Thanks,
      Kevin Graham

  2. HI my husband and i are looking to buy a bigger home. He already owned his own prior to us meeting we have six kids between the two of us living in a two bedroom house. I saw earlier reading that even with our credit scores we might be able to put our current house up for collateral to get another home loan is this true and how do we go about doing that?

    1. Hi Laura:

      All the collateral for the loans we do are based on the property you’re buying. There are bridge loans where you use your existing equity to get a down payment for the new home and pay it off when you sell your current one. However, we don’t do these. I’m going to suggest you talk to one of our Home Loan Experts though. They can dig into your situation more than I can here and go over your full range of options. You can get in touch with them by calling (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  3. My credit score is junk. My husband’s is a little better at 599. We found a house asking price $49,999. We can afford the payments. We always pay our rent on time and our car payment. I know the rent doesn’t help your credit. We really need to be able to get a home loan asap. Would a co signer and document from the reality company we rent from staying that we pay on time help us (him) get a loan?

    1. Hi Rachel:

      I think the best way for you to look at your options would be to call and talk to one of our Home Loan Experts. They would be able to go over your situation and any potential options you may have. You can get in touch with them by calling (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  4. Hello

    Me and my wife are trying to buy a house but my credit score is 584 and I work for the US army and I got a co signer that is willing to help me is there any way that I can get a mortgage???? Please somebody help me with good information
    Thank you

    1. Hi Alberto:

      With a credit score of 584, right now, you’re just over the threshold for FHA qualification. This means you have to keep your credit score at least where it is. We have a sister company in QLCredit where you can pull your credit report for free without affecting your score and get personalized recommendations on how it can be boosted. I’m also going to recommend you talk to one of our Home Loan Experts to get personal advice. You can do so by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

  5. Hello,

    Husband and I have bad credit but we have a family member that is willing to cosign. Could we still get a home loan?

    Thank you

    1. Hi Samantha:

      Unfortunately, it doesn’t quite work that way. Mortgage companies have to look at the lowest available credit score of all borrowers on the loan for qualification. Therefore, you would need to get your score to at least 580 before you could qualify for an FHA loan. A cosigner helps with the debt to income ratio, but not the credit score problem. We do have a service in QLCredit where you can pull your credit report without affecting your score and you can get personalized recommendations on what to do in order to bring your credit up. You might also speak with one of our Home Loan Experts to get their advice. You can do that by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

  6. Good Day! Both me and hubby have bad credit due to some past circumstances that happened. we would to buy a house but our score is R9. If one of our parents is willing to sign with us will be accepted for a mortgage

    1. Hi Anna:

      We can certainly look into your options for applying with a cosigner, but unfortunately, I see that your email address is Canadian. At this time, we only offer home loans in the U.S.

      Thanks,
      Kevin Graham

  7. My fiancé and I have been renting an apartment for a year that’s $1,000/month. Unfortunately the relationship is going awful and I need to leave. I can not afford to rent on my own. But I found a condo that’s $93,000. I messed up my credit score as a young buck 8 years ago (544 credit score). But my mom with good credit is willing to co-sign for the condo. Please tell me it’s possible to get approved 🙁

    1. Hi Nicole:

      I’m sorry to hear about your relationship. Better to find out now, I suppose.

      If your mom has good credit, you may have some options. I’m going to have someone reach out to go to the specifics of your situation. In the meantime, here’s a blog post on ways to build your credit back up.

      Thanks,
      Kevin Graham

  8. I am currently renting a home and I want to buy to make payments cheaper and to own my home my credit score is 530 and trying to improve. I can afford a home I have 2 jobs. Please someone help

    1. Hi Cody:

      Unfortunately, your credit score is too low to qualify for a mortgage at this point. We do have a program to help people rebuild their credit scores. I’m going to have someone reach out to you about this. In the meantime, here’s a blog post with some things you can do to build up your credit.

      Thanks,
      Kevin Graham

  9. Hi my question is I can afford a mortgage payment on a home loan up to 150,000 the house we want is only 75,000 but because of a few divorces and no credit cards I have a low credit score and can’t get a home loan. I have a VA certificate of eligibility And help with the closing costs from a veteran Organization. Why can’t I live the American Dream

  10. Greetings,

    My Dad, Uncle, and I are looking to purchase a home however due to the unforeseen Death of my Mother my credit has taken a bigger hit. I am a Veteran and make enough money to afford a mortgage but my credit is below 620 what can we do?

    Thank you in advance

    1. Hi Katrina, thanks for telling us a bit about your situation, I’ve shared your comments with our home loan experts who will reach out to you to learn more and see how we may be of assistance.

  11. Hi there my fiancee and I are wanting to buy a house both of us have bad credit because of our ex’s. His son who is 19 would like to help should he fill out an application on his own or Co sign by the way he will be living there also

    1. Hi Deanna! I’ve passed your comment on to our team of mortgage professionals. They’ll reach out shortly to discuss your options.

  12. My husband and I are renting a home from owner. We have live in the home and have been since for over a year. We would like to purchase this home but credit isn’t great. The owners are willing to co sign for us. And we also have our Certificate of Eligibility for VA loan. Can anyone help us.

    1. Hi Mildred! Thanks for reaching out! I’ve passed your comment on to our team of mortgage professionals who will reach out to you soon.

  13. Paid $175000 Mortgaged $168000 @ 6% Five years ago All payments on time (Direct Deposit) Balloon Payment due $156330.98 We are retired and clear $3599 per month We secured the loan with a 27 acre lot we own in Warren MA

  14. I am into my 12th year of a 30 year fixed mortgage. We have fallen behind on our mortgage and owe a balloon payment of 5,300 dollars due to lack of employment. If there is any way you can help, please call David appenzeller @ 804-536-8950 or Mary Ann Appenzeller@ 804-536-5424.

  15. Never be dishonest on a loan application! Lying on your application might be tempting in order to get a loan approved or a higher loan amount, but it is, in fact, fraud, and you can be charged criminally for it.

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