Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 12, 2011

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Bad credit affects consumers and homeowners across a variety of demographics. While security loans can be more difficult with a lower credit score, there are many options for borrowers with blemished records. Home mortgage loans can be secured even with bad credit, though the severity of the credit rating is likely to contribute to higher interest rates, stricter repayment terms or higher down payments.

A mortgage loan is backed by the collateral of the property itself, so lenders are able to offer mortgages with greater confidence than unsecured loan types. The value of the home, along with the size of the down payment and other considerations such as the borrower’s income are all part of the consideration process for lenders deciding whether or not to approve a requested mortgage, or to extend a certain interest rate.

In some instances, would-be homeowners can improve their chances of securing an attractive home loan by taking certain steps to improve their overall credit profile prior to application. Such steps may include saving or securing funds for a larger down payment, increasing household income, paying down existing sources of debt and reviewing a personal credit report to identify any entries that may be outdated or incorrect. Additionally, some lenders may direct borrowers to debt consolidation or credit counseling services to help them restore fair credit if the loan is rejected.

Bad credit may increase interest rates on mortgage loans by several percentage points, but finding financial help for purchasing a home is possible with bad credit as long as buyers understand how their credit affects lender decisions.