What’s considered a bad credit score?
Before we dive into the details on what counts as bad credit, let’s break down what a credit score actually is. To put it simply, it helps show how likely you are to repay a loan on time. It’s based on things like your track record of making payments and if you have any outstanding balances. It gives lenders an idea of how risky it is to lend you money—high scores earn high marks for trust, while lower scores can make lenders wary.
Now, it’s time to talk bad credit. Your credit score is three digits, and it’s usually between 300 and 850. Anything under 580 is considered poor and can make it harder—but not impossible—to get the loan you’re hoping for. Late payments, defaults and carrying too much debt are some of the usual factors behind a lower number.
CREDIT SCORE GUIDE
| Range | Guidance | |
|---|---|---|
| No credit score | Having no credit means lacking a credit history—it does not mean you have poor credit. Home buyers without a credit score can still obtain a mortgage. Lenders might evaluate creditworthiness through alternative means like reviewing payment histories for rent and utilities. | |
| Poor (579 & below) | If your score falls below 580, it could mean an uphill climb, but there are options out there to help make it happen. | |
| Fair (580 to 669) | This range falls into fair territory. You can still qualify for a mortgage, but be ready for higher interest rates and less favorable terms. | |
| Good (670 to 739) | Welcome to the green zone. A score here tells lenders you’ve got a solid credit history, and you’re more likely to snag a loan with good terms. | |
| Very good (740 to 799) | This puts you in a prime spot to land strong terms and lower interest rates. | |
| Excellent (800 or above) | This is the top tier, and it opens the door to the most favorable terms and interest rates. |
Can you buy a house with bad credit?
A low credit score doesn’t automatically disqualify you from homeownership, but buying a house with bad credit can be a challenge. Lenders use your credit score to figure out how much they’re willing to lend you and at what interest rate. A lower score could mean they’ll be more cautious about giving you a loan, or that they’ll leave you dealing with higher interest rates. Even a small bump in rates can snowball over the life of a loan.
If you have bad credit, you might even be asked for a down payment of 20% or more to help offset the risk. That’s a lot of cash, especially when you’re just starting out and trying to save for your first home.
Buying a house with bad credit can be hard, but don’t get discouraged. With the right moves, like paying off debts and looking into good home loans for low credit scores, you can turn your dream of buying into a reality.
No credit score?
Home buyers without a credit score can still obtain a mortgage. Lenders might evaluate creditworthiness through alternative means like reviewing payment histories for rent and utilities.
Home loans for people with poor credit scores
One way to buy a house when you have bad credit is to take advantage of mortgage loan programs designed to help people with less-than-perfect credit scores. They typically have more relaxed loan requirements, making it a little easier to get approved. Let’s explore the types of loans you might see in your search:
FHA Loans
FHA loans are popular mortgages for first-time buyers, offering more lenient credit requirements and lower down payments. They generally allow a score as low as 580 with a 3.5% down payment.
VA Loans
VA loans are great for buyers because they generally don’t ask for a down payment and have flexible credit score requirements. These loans are guaranteed for U.S. military service members, including those on active duty, veterans and surviving spouses.
USDA Loans
If the countryside is calling your name, you’re in luck. USDA loans are designed to make homeownership more accessible, and they’re aimed at potential buyers with lower incomes looking to live in rural areas.
Options for buyers who can’t get a bad credit mortgage loan
If you’re struggling to get the loan you’re looking for, remember, your credit score isn’t set in stone. By taking steps to improve it, you can show lenders you’re a safer bet, and that can help you land a mortgage with a better rate. Let’s look at some of your options if you can’t get a bad credit mortgage loan:
Up your available credit
Bumping up your available credit can give your credit score a boost by bringing down your credit utilization ratio, or how much of your credit you’re actually using. Credit bureaus like to see that number stay under 30%. Make sure to check all three credit bureaus, Equifax®, Experian® and TransUnion®, for a full picture of your score.Freeze your credit
This puts you in control of who gets to access your credit and when. When applying for a credit card, car, loan or mortgage, you can temporarily unfreeze and re-freeze as you need to.Pay for deletions
Paying for deletions is all about getting negative marks off your credit report for a fee. Negotiating with creditors and collection agencies can take some effort, but getting rid of late payments or collection accounts can really push your credit score in the right direction.Steer clear of hard credit inquiries
Hard credit inquiries can ding your score, so it’s smart to keep them in check when you’re working to raise your credit score. Examples of hard enquiries include applying for credit cards, leasing a car and applying for other big loans such as personal loans.Dispute incorrect information
If your credit report contains errors, disputing them is crucial. Incorrect information can drag down your credit score significantly. By ensuring all information is accurate, you can maintain a fair score that truly reflects your creditworthiness.Negotiate settlements of collections or past due accounts directly with creditors
By settling these debts, you can potentially have them marked as paid or settled on your credit report, which is more favorable than having outstanding collections.Pay off credit cards using the snowball method
The snowball method involves paying off your smallest debts first and gradually working your way up to the larger ones. This can help you build momentum and keep you motivated as you see debts being fully paid off, which can also improve your credit score.Open secured credit cards
Secured credit cards are one tool for rebuilding credit. They require a cash deposit that serves as your credit limit. Because the credit card issuer has less risk, they are more willing to provide these cards to individuals with bad credit or no credit history.
Luckily, buying a house with bad credit is possible, and one way to begin is by boosting your credit score. It doesn't happen overnight, but it’s a worthwhile investment that can make a difference in making your dream of owning a home a reality.
