Many of us have been there. We know the feeling of unexpected ill fortune or even a catastrophe or two that have set us back. If we have not personally had the experience, we know others who have. They may have had medical illnesses or emergencies, a job loss, divorce, an unfortunate lawsuit (particularly unfortunate if we were an innocent party and had to pay the legal expenses to defend ourselves), an uninsured accident, a co-borrower who may have abandoned his/her obligations, a tax lien which will not go away or even a foreclosure or bankruptcy. What do these items have in common? The most likely common results would be adverse consequences to the credit worthiness of the individual.
We have spoken with many people who have experienced some of the situations enumerated above. Responses to their dilemma range from embarrassment to belligerence. They are embarrassed because this is not their normal modus operandi or belligerent because they feel they have been victimized by an ex-spouse, vendors or the government. Fortunately, lenders are looking at the times we are in and taking action to accommodate people who have encountered problems. People who have problems beyond their control want very much to do the same things which people who have not experienced difficulty want to do. They want to buy a home, buy a car, start a business, finance education for the children, take a vacation, do some home improvement, have specialty coaching for the kids (particularly after Tiger Woods' performance), or even buy investment properties.
We have heard the term "A" or "A+" credit most of our lives. The terms we are now hearing are terms such as "B" or "C" credit. We have also seen over the last year a proliferation of lenders who have entered the marketplace offering programs for the not so squeaky clean credit borrowers. Many people who have had credit problems in the past feel there is no place for them to turn. No longer is this the case. Lenders have developed programs to accommodate many borrowers who would have been considered "hard money candidates" just four or five years ago.
A borrower who has a credit report reflecting "B" grade credit (a couple of 30 day lates on the mortgage, 60 day lates on credit cards, even some chargeoffs etc.) still has the ability to acquire a loan. However, any credit grade below an "A" will experience an increase in interest rate. There is a gradation system set up as to the degree of credit worthiness. Lenders first look at the history of mortgage payment, usually twelve months with no thirty day lates being the criteria, installment loans (car payments, etc.) followed by revolving charge cards. The grade will depend upon the payment history of the above and any other derogatory information on the credit report (tax liens, collection accounts ((paid or unpaid)), judgements, etc.). As credit diminishes the lender will look to the equity in the property to protect its interest. If one has excellent credit, the loan to value ratio for the property will be quite high, however with marginal credit the lender will look to have a greater equity position in the property.
Take heart! Today's credit report is not like your permanent record at school. This report will pass. Your credit rating is not permanent, not static. It is a dynamic record. The higher rate you may pay today is a stopgap measure enabling you to reestablish a payment history that over one or two years will afford the opportunity to refinance with an "A" credit rate.