Bad Credit Loans Still Exist

It appears from my searches that there is still an existence of what is called "Bad Credit Loans." I was a little perplexed that there are these kinds of lenders still doing business after the vast SubPime meltdown. At any rate; I guess there is still a need for these loans to some extent, but not because someone does not pay their credit obligations as they should. It seems that some of these online lenders still make mortgage loans.  They also make personal loans, payday loans, car loans and the like; they say.

The "Bad Credit Loans" or I would like to say "less than perfect" loan, should be to help people who may have had a period of time when they experienced a hardship such as illness, loss of a job, divorce or death in the family. Usually their credit report reflects that the credit delinquency was during an isolated period of time. It normally would not be something that has been consistent throughout their credit history.

In any lending situation; a loan officer is going to be looking at consistency; or they should be. When you apply for a "Bad Credit loan," you can expect a higher rate of interest and sometimes higher closing cost. Anytime you buydown a rate, which often happens, it will cost you a discount point, which amount to a percentage point times your loan amount. (This can mean .250%, .375%, .500%, .750% and sometimes 1.00%).

Bad Credit

To me "Bad Credit" loans should never be made. Why? Simply because a person who does not and has never paid their credit obligations in a timely manner, is not going to change just because they purchase a home. I should say; they are not likely to.  That does not mean that it is never acceptable to have some issues on your credit report but, when accounts have never been paid in a timely manner; it is not to the benefit of the lender to approve your loan.

Bad Credit is credit trade lines with several 30, 60, 90 or 120 day late payments.  Collections which are many, judgements and charge off that have not been paid are also included. Delinquent child support payment, bankruptcy less than 2 years old, forclosure within the past 3 years and delinquent student loans to name a few. I will also add; federal and state tax liens.

I have seen these kinds of reports and my thoughts as an underwriter is that this type credit reports reflects the disregard for paying their credit obligations in a time manner. Are there reasons for this excessive delinquency? Could be; but usually if you see almost every account on a credit report which has a delinquency, it is NOT an isolated circumstance. It tells me that this person simply does not pay their bills. This would be a risky loan.

Minor Delinquencies

When an individual has a credit history with only Minor Delinquencies; this means you will see minimal late payments, scattered around, (usually not currently) not all on one account and without collections, judgements, bankruptcies etc. and not within the past 12 months. If the lates are within the past 12 months, the score is going to reflect it. It is possible to miss paying a payment for one month without meaning to. There are other circumstance which may cause a delinquent account and these are not frowned upon normally if there are other sufficient trade lines which have been paid as agreed. Minor delinquencies, meaning a 1 X 30 late payment on three different account over, 24 months old; is not going to keep anyone from being approved for a mortgage loan or any other loan if all the other qualifications are met. If you have a mortgage late payment; this will usually influence your credit score and in mortgage lending this is definitely frowned upon.  Excessive late payment on a mortgage is a reason a reputable lender will deny the loan. 

Now as most people know; the credit score plays a large roll in approval of a loan. Sometimes the credit score does not give the true value in my opinion. Here is why: I have seen someone who had several delinquent accounts in the past with a credit score of 720; yet I have seen someone with a few negative accounts and the score was 660. The difference relates to the following: The person with the 720 score probably had a history of ten years on their report with sufficient open account that have been paid as agreed with no current late payments within the past 12 to 23 months. The person with the 660 score; may have had few trade line which are open and are recent with the trade types all revolving accounts.

The above is just an example I have given as it is never easy to know exactly how a score will flow with just minor late payment. If they are over 24 to 36 months old; they should not make a great difference in the scoring.

Lenders are looking for the most recent 24 to 36 months history to make loans and this includes "Bad Credit Loans." Yet, If the entire report is bad; I cannot see that any lender can make justification for making the loan. 

Please do not let anyone fool you into thinking that they can provide you with FHA (Federal Housing Association) or VA (Veterans Administration) guaranteed loan; if you have excessive credit problems. That is not the case. Neither one of these agencies have guidelines to support bad credit loans.

It does not mean that you may have somewhat weaker credit, with less than perfect, but if you have massive delinquent account within the past 12 to 24 months; you cannot pass the test for these two loan types.

I am just trying to steer you away from anyone who proclaims to be able to do this. They will lead you into another type of loan with higher interest rates and terms which may not be to your benefit.

There are circumstances when a person can work on their credit to get issues resolved and fixed; sometimes you can have items reported to the bureau incorrectly. For instance, medical collections etc. which have been paid but are not showing as paid.