How Loans Can Help Rebuild Bad Credit

2 May 2018 Kion Kashefi

Homebuyers in Tampa, Florida are loving the accelerating real estate market. Many beautiful homes are for sale, and prices still remain affordable. The Tampa-St. Petersburg area offers prime career, educational, and healthcare opportunities, in addition to the best weather and most beautiful scenery in the U.S.

Not everyone looking for a house in the Tampa area has perfect credit, but that doesn’t mean they have to remain renters. If you have the resources to buy a home, past bad credit need not freeze you out of this hot real estate market. The Associates Home Loan of Florida, Inc. helps Tampa home buyers with attractive bad credit loans.

How to boost your credit score

During the 2008 recession, millions of Americans lost their jobs. With the housing market in free fall, foreclosure rates skyrocketed. Households that once enjoyed steady incomes and great credit scores suddenly found themselves down on their luck.
For many, this was the first time they experienced bad credit.

Delinquent payments, overextended credit lines, and accounts in collection bring down credit scores. Because they represent liabilities, they make getting new credit difficult. Creditors fear that the borrower will be forced to repay all of this outstanding debt, forcing them into default on any new obligations.

As the time since defaults increases, this risk decreases, and the credit score gradually rebounds. Many borrowers in default enter credit counseling, go through foreclosure, or file bankruptcy. These actions often result in debt being eliminated, which helps credit score in the long run, though credit scores decline sharply right after these events. Most mortgage loan programs require a period of time to pass after these events before borrowers qualify.

There are many strategies that help individuals rebuild credit. New, good credit pushes the score higher. Thomas Nitzsche, senior media relations coordinator at Clear Point Credit Counseling Services in Atlanta, recommends rebuilding your credit right away after a life event causes bad credit. As a first step, he counsels requesting a copy of your credit report. Look for favorable credit and do whatever you can to shore up poor credit and have inaccuracies removed. If you lack much favorable credit, you need to open new trade lines that can build a reliable payment history.

Opening a secured credit card is a simple and effective way to rebuild your credit. Once your secured credit card payments create a record, you are likely to receive offers for low-limit subprime unsecured cards. Though these have high interest rates and fees, they help rebuild credit, which results in more, better credit card offers. Many banks and credit unions offer credit builder CDs, which help you establish a loan repayment history.

Should borrowers take out bad credit loans?

There are many great loan options available to people trying to rebuild their credit scores. Taking out bad credit loans helps immensely because if you don’t establish new credit, options for big-ticket item loans remain limited. Nerd Wallet recommends credit builder loans in addition to secured and subprime credit cards.

Offered by many smaller banks and credit unions, credit builder loans receive less advertising than other subprime loan products, though they can have a huge impact of credit scores. They are often termed “fresh start loans” or “starting over” loans. People with low or no credit qualify because the borrower secures the loan amount at the bank or credit union.

For example, Joe has a recent foreclosure and bankruptcy and needs to reestablish his credit profile. He applies for a fresh start loan at his local bank. He deposits $1,000 and takes out a $1,000 loan with a monthly payment of $80. As he makes his $80 payments each month, the bank reports the on-time payments to the three major credit bureaus. His consistent payment record drastically increases his score. At the end of the loan, Joe withdraws his $1,000 and now qualifies for a larger, unsecured loan.

Mortgage payments boost credit

Whether or not to purchase a home is a personal decision that has a great deal to do with your circumstances. What are your family’s needs? What is the state of the real estate market in your area?

If you need a home and the market is good, then it’s worth considering. The sooner you buy a home, the sooner you start building equity. Waiting several years can result in buying after home prices have increased drastically. This means a lot of money going out the window over the life of a mortgage.

When considering a mortgage, always analyze your financial wherewithal. Can you establish a budget that doesn’t leave you overextended? Is your income stable in the long term? Selling a house after just a year or two can prove difficult or impossible. You need to know you can keep up the house payments for at least 5 years.

When households have income stability, bad credit loans for mortgages make sense. Since you know you can make the payments, you know you will establish a great credit history. Not only do you gain equity in your home, you also gain the credit score that qualifies you for attractive refinance options.

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