Buying a home in Houston? Know these 5 reasons for bad credit

reason for bad credit houston

Bad credit is something you must try to avoid at all costs if you are planning to buy a home in Houston. In fact it is one of the biggest challenges Houston home buyers face. While it is strongly recommended that you should maintain a stellar credit score, it is easier said than done.

Most people check their credit score only when they apply for a loan. And the news that their credit score is not good enough to qualify comes as a big shock. This situation is commonplace among home buyers because credit score requirements are most stringent when it comes to mortgage qualification. Unfortunately, some of the reasons for bad credit are out of your control. In some other cases, people realize the consequences of their small financial mistakes only when the time comes to prove their creditworthiness.

Here at Shop Owner Finance, we specialize in helping credit challenged home buyers.  While working with these buyers, we have come across some common reasons why people have bad credit in Houston.

Credit cards

When it comes to bad credit, your credit card can be one of the biggest culprits. Credit cards can damage your credit score in many different. Your credit score will drop:

  • If you have maxed out your credit card or maintain a high balance.
  • If you miss credit card payments
  • If you pay only minimum balance
  • If you apply for multiple credit cards while having balance on your existing one.
  • If you close a credit card that still has a balance
  • If you have never had any credit cards (credit cards help you to build credit history)

It is important that you use your credit card wisely. Try not to miss monthly payments and maintain a low balance. Do not close all your credit cards at once. Do not apply for multiple cards. When used wisely, a credit card can actually help you build credit.

Foreclosure and bankruptcy

Many homeowners went underwater during the 2007-08 financial crisis and stopped making mortgage payments. The banks foreclosed on their homes. Currently there are a lot of people looking for homes in Houston housing market with a foreclosure showing up on their credit report.

A foreclosure severely damages credit. It stays on a credit report for several years and cause lenders to disqualify people for mortgages.

In case you have a foreclosure on your credit report, you will find it extremely difficult to qualify for a mortgage. You either have to wait for your credit score to improve (which might take several years) or consider alternative financing options such as owner financing.

Identity theft

Unauthorized transactions and accounts cause the credit score of an identity theft victim to drop significantly.

If you too are an identity theft victim, you should first examine your credit report and look for any errors. You will be surprised to know that almost 75 percent of consumer credit reports contain at least one error. And in an identity theft case, the report will riddled with errors, particularly when unauthorized transactions were made using your credentials such as social security number.

Missed utility bill and rental payments

Gone are the days when only loan payments were reported to credit bureaus. Even your rental and utility bill payments can have a huge deal of impact on your creditworthiness.

Many landlords have started reporting rent payments of their tenants to the credit bureaus. Even tenants can now report these payments through rent reporter agencies.

Court judgements and property tax liens

If you frequently miss your property tax payments and have other court judgements against you.

Liens and judgements may not affect your credit score immediately like other types of debt delinquency do, they can certainly have a very negative impact in the long run.

The reason is that the authorities don’t regularly report to credit bureaus. However if a tax lien is filed on your house, it will remain until you are delinquent. It will eventually be reported to credit bureaus.

If you have bad credit, you should know that it takes patience, discipline and time to rebuild it. Here at Shop Owner Finance, we believe that bad credit should not prevent you from owning a home, particularly when you are financially disciplined.

Set an appointment today to learn more about our specialized real estate brokerage service.

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