People with bad credit scores increasingly find it difficult to secure a home loan. Moreover, having no credit score at all presents just as big a hurdle to qualifying for a home loan as having poor credit ratings. Fortunately, there is a perfect solution to this impediment – getting a secured credit card. Consumers wishing to apply for a mortgage but haven’t built enough credit history to even have a credit score will find this card extremely helpful.
How do secured credit cards work?
Unlike conventional credit cards, secured cards need their holders to make a security deposit with whatever financial institution issued the card. In this case, the maximum amount of money a borrower can avail is based on the card’s security deposit. This offers some protection to the lenders working with consumers who don’t have an established history of managing credit. For example, if the borrower is late on his or her payments, the lender simply takes money from the security deposit to collect what is owed.
Most of the already established mortgage companies in Montreal encourage consumers who don’t have an established credit history to opt for secured credit cards as a means to getting financial assistance from them. These institutions are far less likely to approve loan applications from consumers that come with only a conventional credit card.
What happens once you have a secured credit card?
With a secured credit card, you are able to make regular purchases each month and then pay them off on time. This way, you are able to steadily build up sufficient credit history so as to generate a good credit score. With this score, you then can realistically start to think about applying for a home loan.
The majority of consumers have a 3-digit credit score, a figure that is high enough if they have a history of paying their normal monthly bills on time, or not running up too much credit card debts. On the other hand, the same figure is low for consumers with a financial history that is marked by late or missed payments, foreclosures, bankruptcy filings, and the likes.
The majority of young people have no credit score to talk about since they have no credit history on which to base a score. However, they can build up good credit scores by making timely payments on credit card debts, student loans, mortgages, auto loans, etc. Consumers that don’t have any of these kinds of debts have no credit history to talk about.
Make proper use of your secured credit card once you get it
Upon making payments on your secured credit card, the financial organization behind it instantly reports these payments to the three credit bureaus namely Equifax, TransUnion and Experian. As you generate a history of timely payments, you instantaneously establish a good credit score. If you continue making prompt payments, your credit score remains a solid one. This way, when you apply for a home loan product, the lender does not have a problem approving your request.
All in all, getting a secured credit card is easier than applying for a conventional credit card. The main reason for this is that the issuing financial institutions do not run a credit check on the consumers that apply for these kinds of cards. This being the case, your lack of a great credit score can’t affect your application or even hurt you. Once you get your card, make sure to pay your loans dues and credit card bills on time. If you make late payments, the issuer of your card immediately reports missed or late payments to the above mentioned bureaus, something that end up contributing to your home loan application rejection. You don’t want this to happen to your mortgage application, do you?