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Bad credit vs. Low Credit Score
I was interviewing a client the other day, and in the course of our discussion, she told me that she didn't think she could qualify for a home loan. When I inquired why she felt that way, she said that it was because she had lousy credit. We went forward with the process, and upon review of her credit report, it showed that she had a low credit score, but did NOT have lousy credit. The conversation that followed was one that I thought would be great for a short blog article...
Bad credit and a low credit score are two completely different things.
So, What's the difference between having a low credit score and having bad credit? The answer is simple.
A person with bad credit exhibits the following characteristics:
- They pay their car payment late every month
- They opt to skip credit card payments at will
- They consider bills to be the absolute last priority
- They make less than the minimum required payments
- They charge up a new credit card and then never make a payment
- Spend money out of their checking for new stuff, instead of for the bills that are due
These purposeful actions are what cause people to have bad credit. Having bad credit is the result of being irresponsible about paying the debt you have the complete ability to pay. Choosing to handle your debts and finances this way results in you having a low credit score, and, being deemed as a severe credit risk.
After being in this industry for 15 years, I've found that the majority of people out there do not match the characteristics listed above; in fact, they're the exact opposite. Most of the people that think they have lousy credit, actually don't; all they have is a low score.
A person can religiously pay all of their bills on time each month but could still have a low credit score. Most often, the lower credit score is caused by something simple such as a medical collection, or, maybe an ancient account you may have forgotten. It's crazy, but just one medical collection can drop a credit score by 100 points or more. Someone can also have a low credit score due to a sudden catastrophic event, such as a severe illness or death in the family. The temporary problem results in a lower credit score right now, but, does not negate the otherwise perfect payment history. The lower score doesn't mean you have bad credit; it just means you had a bump in the road dealing with a life event.
To summarize, lousy credit is being irresponsible and not giving a damn about it. A low credit score is just a temporary bump in the road, caused by everyday life events catching you off guard. You cannot get a home loan with bad credit. But, more often than not, you CAN get a home loan with a low credit score.
If you fall into the 'low score' category, do yourself a favor and call a mortgage professional before you give up on buying a home. Have your credit report reviewed and discuss the bumps in the road you encountered. You may find that you qualify for a home loan after all!
I have a loan program that focuses on home loans for people with low credit scores. It's a fantastic program I'm excited to add to our product list. If you have a low score and have questions about whether or not you may qualify, feel free to contact me. I'd be happy to help!
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