Getting a Loan If You Have a Low Credit Score – Tips to help you on the road to financial security

According to the San Francisco Chronicle (sfgate.com), the average U.S. household debt (excluding mortgage debt) is about $14,500. If you are among the many in debt and have a low credit score, you may think that securing a loan for a vehicle, college or emergencies is impossible. However, by following some of the tips below, you may find that you actually can secure the credit you need.

• Check your credit report for errors: The first step you should take before applying for a loan, whether you have a high or a low credit score, is to check your credit report for errors. One inaccuracy on your credit report can make a big difference in your FICO score. There are three credit reporting bureaus whose reports you need to check: TransUnion, Experian and Equifax.
• Work with your established financial institution: It is often easier for a borrower with a lower credit score to get a loan from a financial institution with which he or she already has a relationship. Talk to a loan officer to see what he or she can offer.
• Make large payments, on time: Reducing your debt always helps your credit score, but even more important is the process of making payments on time. For a few months before you plan to apply for a loan, make larger-than-normal payments on time; you’ll improve your credit score through that one simple move.
• Pay something off: If your debt-to-income ratio is high, your ability to get a loan will suffer. If your account balances are close to your account limits, your credit score is similarly impacted. Reduce your balance-to-limit ratio by paying off some of your smaller balances before you apply for a loan. Not only will this help your credit score, but it will also reduce the amount of interest you pay to creditors each month.
• Talk to your creditors: If a creditor was paid in full but paid late, that history may be negatively affecting your credit score. You can call creditors to see if they will remove negative history from your report; especially with paid-off debt, they may be amenable to this. Additionally, if a recent late payment was reported to the credit bureau and is hurting your score, but you are generally an on-time payer with that creditor, call the company to see if it will re-report the data to remove the black mark on your credit record.

Our loan officers are here to discuss your borrowing options. No matter what your credit score, stop by to learn about the ways that we can make our lending programs work for you.

Finding a Mortgage You Can Come to Terms With How to choose between a 15-, 20-, and 30-year fixed-rate mortgage.

With mortgage rates still near record lows and expected to rise, now is a great time to buy or refinance a home. It’s also a great time to lock in those rates for the long term with a fixed-rate mortgage. But not all fixed-rate mortgages are alike; the one that’s right for you depends on a few factors, including:

• How long you plan to live in the home.
• Whether you prefer paying less per month or paying more per month over a shorter period of time.
• Whether you’d like lower interest fees or lower payments.
• Whether you expect your income to rise.

The most popular option is the 30-year fixed-rate mortgage, which offers the ability to lock in a competitive rate over a longer term, thereby keeping your monthly mortgage payments lower.

When choosing a mortgage, it’s important to note the following:

• The longer the term, the more interest you’ll pay over the life of the loan.
• The longer the term, the lower your monthly payments will be.
• The shorter the term, the less you will pay in interest.
• The shorter the term, the higher your monthly payment will be. 

See the difference.

The good news is that in today’s low rate environment, many borrowers are able to choose shorter terms, such as 15 years versus 30 years, and still have manageable monthly payments. The example below from bankrate.com demonstrates that the shorter the mortgage term, the less interest you will pay. It assumes the buyer has a $100,000 mortgage. Rates are just examples and will vary by lender.

Option	15-year fixed	30-year fixed
Interest rate	4.75%	5.50%
Monthly payment (principal and interest only)	$778	$568
Total payments over term	$140,010	$204,480
Total interest fees	$40,010	$104,480

As you can see, with the 15-year mortgage your monthly payments are higher than with the 30-year mortgage. However, by choosing a 15-year mortgage your interest payments over the life of the loan are significantly lower ($140,010 versus $204,480).

Know the general rules.

A longer-term mortgage, such as a 30-year, might be right for you if:

• You expect your income to rise. If that’s the case, your monthly payments will be more affordable in the future, since your principal and interest payments won’t change.
• You plan on living in the home for a long period of time.
• You want to qualify for a higher mortgage loan amount.

In contrast, a shorter-term mortgage, such as a 15- or 20-year mortgage, may be right for you if:

• You can afford higher monthly payments.
• You don’t plan to live in the home as long.
• You want to reduce interest costs.

Prepayments of interest can help you reduce your loan term and interest paid.

Whatever mortgage term you choose, it’s important to note that you can always make additional payments on the principal at any time. This could effectively lower your interest fees and the term of the loan.

 

For example, with rates so low, you might consider getting a 30-year mortgage and paying extra money toward the principal each month. Or you can arrange to have your mortgage paid biweekly instead of monthly. With a biweekly mortgage, you’ll make extra payments each year that will go directly toward the principal of the loan, thereby reducing the term of your loan and interest fees over the life of the loan.

We can help you make the right choice.

If you’d like to learn more about the mortgage option that’s best for your unique situation, we’d be happy to help. Just stop by or call us.