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What can a bad credit cost you?
By: Debt Samaritans
Your credit score is not merely a three digit number; it is a snapshot of your creditworthiness. It can affect everything from whether you qualify for a loan, an apartment lease to whether an employer hires you or not. If you are marked as having bad credit, you will be having a real tough time in obtaining loans and even if you do, pay a higher interest rate than someone with good credit. So, settle in and check out the consequences of having a bad credit.
Buying a home with bad credit
In case of a mortgage loan, the cost of bad credit is the most evident one. A poor credit can really hurt your dream of purchasing that dream house. A bad credit doesn’t mean that you would be turned down for a loan but you will have to certainly pay a higher price for the dream house. For instance, if you have a credit score of 710 and above then you will have lenders running after you to offer you loan at favorable interest. A score in the range of 620-700 can also fetch you some good deals on mortgages. But if your score is in the range of 560 to 619 then it would cost you some hundred or thousands of extra dollars to get approved for the loan. Given below is a table that will illustrate how your score can influence the interest rate on a $200,000 mortgage paid over 30 years.
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What Comprises Your Credit Score
In the simplest terms your credit score is your credit history calculated in figures. There are many methods which can be used to calculate your credit score but the most common method is the FICO. FICO was developed by the Fair Isaac Company and is the preferred method used by most lending companies. Your credit score determines whether a lender will approve your application or not or whether a lender will give you less rates on your payments or not.
Credit scores or FICO scores generally range form a low of 340 to a high of 850. Ideally, you should aim for a score of at least 700 or more. If you get a score of 600 and below, creditors will likely consider you as a high risk borrower.
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Foreclosures: Tips and Warnings
First of all, you need to be aware that a mortgage lender can foreclose your home for two reasons. The first one is defaulting on your payments. Generally, lenders will issue a Notice of Default if you miss three mortgage payments consecutively. Another possible ground for foreclosure would be a violation on a major regulation or policy of the lender.
What You Can Do
However, in most cases, the reason for a home foreclosure is due to a default in payments. For some home owners, they waited too long before taking any appropriate action that would have prevented foreclosure of their property. If you currently have a mortgage loan, it is important to be constantly aware of your payments. If for some reason, you miss one of your payments, speak with your lender right away and inform them the cause of your delay. Don’t wait until the second or third delay on your payment or for a Notice of Default before taking the initiative to contact your lender.
Even if it’s just a single payment that you missed, it would be to your advantage if you talk with your lender right away. This is especially true if you know that there is risk that you might not keep up with your monthly mortgage for the coming months. You may have been sick and cannot go to work, or you might have needed the money for an emergency or you might have been laid off from work. In case, it will not help if you just stay quiet or attempt to hide from your creditors.
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