Do you know that you can significantly improve your credit score by getting a second mortgage when you have bad credit? If used correctly, a second mortgage can be used to repair bad credit although the challenge lies in qualifying for one when your credit score is bad. If your application is strong enough and you’re able to get a good interest rate, then you’ll definitely be able to repair your credit score.
Effects of Bad Credit
Using a second mortgage to fix a bad credit come with a lot of possible pitfalls. You have to note that a second mortgage is still a loan and that it comes with a higher interest rate than your primary mortgage because a second mortgage carries a higher risk for the lender. This means that the lender for the second mortgage will only get paid after the lender of the primary mortgage in case you default on your payments; and hence, second mortgage lenders charge higher interest rates especially for people with bad credit. Bad credit may also mean that stricter terms will be drafted for your second mortgage.
The First Step to Repair Bad Credit
Before you can use a second mortgage to repair your bad credit, you have to qualify for a second mortgage first by improving your credit score even by just a little. You can achieve this by getting a copy of your credit report and looking for mistakes that can be reported to quickly improve your credit score.
Pay Some of Your Debts
Paying off some of your small debts or working to get some of your credit card debts below 30% of your credit card limit can drastically improve your credit score and help you get approval for a second mortgage. Do not be tempted to move your debt to a lower interest card because that is only a band-aid solution that can hinder your possibility to get approval for a second mortgage. Remember that multiple rejected applications can also damage your credit score.
Get a Second Mortgage to Fix Bad Credit
After you’ve done the above, it is still possible to have some trouble getting approved for a second mortgage if you have bad credit. One way to get approval is to have someone as co-signer, perhaps a family member who has a good credit score. It will also help to seek the assistance of professional mortgage brokers who can connect you with lenders who may be more understanding of your situation. A good mortgage professional will not only help you shop for a lender but will also make sure to protect your interests so that you’ll be in a better financial position while paying your second mortgage and even more so after. By paying off a second mortgage, you can fully fix your bad credit. The trick lies in borrowing only what you can afford with the help of trusted mortgage professionals and staying on top of your payments.