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Getting Approved For Home Equity Loans With Bad Credit
By EchoBay Loans Staff Writer

Many people believe that bad credit will prevent them from obtaining home equity loans. For the majority of borrowers, there are programs available to help them regardless of their credit history. Loans that are tied to property are generally easier to obtain for someone with less than perfect credit as opposed to a loan for personal debt or even an automobile.

A lenders' biggest concern is your ability to repay the loan. In the case that you default, they must have the loan collateralized well to prevent a loss. In the majority of situations, homes appreciate in value and therefore pose less of a risk to the lender than an automobile which loses a great deal of its value as soon as it is driven from the dealer's lot.

What should you expect with bad credit?
While it is easier to obtain a loan secured by property with bad credit, you should not expect to receive the same terms as a borrower with good credit. The lender is taking more of a risk on your home equity loan and charges accordingly. If you have poor credit, there could be higher closing costs and there will almost always be a higher interest rate. The difference in interest rates between a good credit loan and a bad credit loan could be as much as 3-4 points.

While some home equity programs offer you the opportunity to borrow up to 125% of your home's value, this may not be the case with bad credit. Those programs are often reserved for borrowers with perfect credit. When you have blemishes on your credit report, your lender is likely to stick very closely to the guidelines and may even allow even more of a cushion between the value of your home and the total amount of debt than usual.

What type of lender should you go to for a bad credit home equity loan?
Many traditional banks do business mainly with those with good to excellent credit ratings and histories. For bad credit, borrowers usually have to seek alternatives. Mortgage brokers typically have an array of lenders to choose from and many of these extend home equity loans to those with less than perfect histories. Finance companies are another option.

One of your greatest resources is the Internet. There are thousands of lenders who focus solely on bad credit loans including home equity loans. The Internet can be a great place to search out these companies and most will even allow you to apply online.

How can you improve your credit?
There are three credit reporting agencies that gather information about your financial history - Experian, Trans Union and Equifax. Your lender generally uses just one of these agencies. It is important to annually request a free copy of your credit report from each agency to be sure that no erroneous information has been added. Each company has a process available to clean up any misinformation on your credit report.

But what if the report is valid? The most important thing is to pay your debts on time every month from this point forward. If for some reason you are going to be late with a payment or cannot make your payment, contact your creditor. Many are much more understanding if the borrower makes the phone call rather than the creditor having to go to the trouble of calling.

If you have a great deal of credit card debt, try to consolidate everything to one credit card or into one loan. After you have done this, cancel all of your other credit card accounts. When you have many credit card accounts, even with zero balances, it can lower your rating and you can be seen as more of a risk because of the amount of credit you have available to you.

Your credit history generally appears on your credit report for ten years. If there is a specific reason for the bad credit such as a divorce or medical condition, most of the credit reporting agencies will add a statement to your credit report to advise those who pull your credit of this. While it does not affect your credit rating or history on the report, it does give the lender some insight into the situation. For those with bad credit, rest assured it is possible to obtain home equity loans. It just takes a little more research and the willingness to pay more to cover the lender's risk.


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