More than ever, it is possible to buy a home with bad credit. But a more important question is whether you should. Try to honestly answer this before signing that mortgage contract.

It is spring 2007 as I write this. Payments are coming in late on one out of eight sub-prime mortgage loans (the loans most likely to go to those with bad credit). Many of these loans are variable rate loans, and as they have their interest rates adjusted upwards, the problem will only get worse. At the moment tens of thousands of families per month are losing their homes.

Why buy a home you can't afford to keep? This doesn't mean all people with bad credit will lose their homes, but the primary way in which you buy a home with bad credit is to pay higher interest rates and other costs. Just be sure you can really afford the payments now, and the ones you'll have when interest rates go up. Also keep in mind that even if you can afford it, buying a home does not always make sense.

You may be better off renting when rents are low relative to home prices. This is especially true if you invest the money you save from renting versus buying. In Tucson, Arizona, for example, small homes rent for $750 per month, but sell for $195,000. add up your mortgage payment, taxes, insurance and maintenance, and it might cost $800 more each month to buy versus renting. If you rent, and then bank that $800 you save each month, you may be further ahead in a few years, especially now that the price appreciation has slowed down.

How To Buy A Home With Bad Credit

Perhaps for you, owning a home is the right way to go. In that case, the first thing you should do is fix that credit report, because a better credit score means a lower interest rate. Pay 2% less and you can save more than $70,000 in interest over the years (based on a 30-year $140,000 loan). But how do you fix that bad credit report?

Look at what's on your credit report. An online search for "free credit report" might still get you one for free. Otherwise, if you've been denied credit based on a report from a local credit reporting agency, you can request a free credit report from that agency within 30 days of the denial.

Are there any inaccuracies on your report? If so, write a letter to the agency explaining exactly what is wrong, and send it all by certified mail. Include copies of canceled checks and other documentation. The agency must contact the source of the disputed information. If they don't receive confirmation of the debt within 14 days, they must delete the item, and send an updated report to you. They also must send a corrected report to all creditors who received your credit report in the previous six months - but only if you ask (it won't be done automatically).

If the item is a couple hundred dollars, or over a year old, creditors often won't even respond. The item must then be removed, so "fixing" a credit report is possible even if it is correct. The item can be disputed again after 30 days has passed.

If you buy a home with bad credit now, you might be able to refinance at better terms in a couple years, so start working on long-term fixes for your credit rating. Pay off credit card balances each month. Keep five credit cards or fewer. Maintain balances at less than half the limits on the cards, by transferring debt from one card to another if necessary. Stop doing things that lower it, and time alone will help raise that credit score. Many items will be automatically removed if they are seven years old.

Buy A Home With Bad Credit - Part Two

To buy a home with bad credit you could just keep looking until you find a bank or finance company that makes these high-risk loans. But high-risk to them means high interest and fees for you. Want to avoid that? Consider the following alternatives.

- Lease option. Sellers will sometimes lease their house to you with an option to buy it later. Part of the lease payment should apply towards the down payment. If, for example, $250 of the rent applies towards the down payment, after two years you'll have a $6,000 credit to use as a down payment (or as part of it). Those two years might also be enough time to correct your credit, and so get a better interest rate on that mortgage.

- Seller financing. A seller may be willing to provide the financing. It might be in the form of a "contract for sale" or an owner-carried mortgage. Either way, you make payments to the seller instead of the bank - usually with no lending fees and with a lower interest rate.

- Creative buying. I know of a landlord who was anxious to sell his four-plex. The buyer offered full price if he would carry the financing, and take a low down payment. Furthermore, closing was arranged for the first days of the month, so the buyer's small down payment came from the rents that were credited to him (rents had just been paid, but are paid in advance, and so belong to the new owner). The following month when a tenant moved out, he moved in. People have found many creative ways to buy a home with bad credit.

The credit card is just about 50 years old and yet, today there are more credit cards in the UK than people. In fact, £25 billion are spent annually using credit cards in the UK alone!

It all began in the year 1951, when a New York based bank called Franklin National Bank started providing cards to a select few of their loan customers to enable them to make purchases using the cards as collateral. The bank had no idea that they had just begun a consumer revolution that would change the nature and scope of financial transactions across the globe.

The Growth of Credit Cards
American Express quickly jumped onto the credit card bandwagon and even though it was essentially a company issuing only traveller’s cheques, in 1958, they began issuing credit cards too. This was a win-win for all stakeholders because:

* credit card companies made handsome profits
* users found the cards to be convenient to carry and they enjoyed the extra benefits and perks
* retailers and shop keepers discovered that consumers spent more using their cards instead of cash

Barely a year later, in 1959, Bank of America launched the BankAmericard, the predecessor of the Visa credit card. In response to its phenomenal popularity, 4 banks based in California launched a rival credit card known as MasterCharge. In the mid 70s, BankAmericard was renamed Visa and barely 3 years later, MasterCharge became MasterCard.

The trio of Visa, MasterCard and American Express, or AmEx, have survived in the global marketplace since then. Many other cards were launched and died but these 3 have retained their hold with varying degrees of success in different geographic and economic strata.

Current Credit Cards
Nowadays credit cards offer a lot more than the original cards did; you often have the option of getting rewards, cash back, 0% balance transfers, discounts, free air miles, and so much more. Cards also look much better than before because they are often available in a wider variety of colours, designs and shapes. On some cards, you can have a photo or creative design of your choice printed on them.

One of the major advancements of credit cards is that they enable you to shop online securely and safely. Online shopping now accounts for almost £9 billion which accounts for approximately 40 percent of annual credit card sales. Just last year, Britons spent almost £24 billion on their credit cards - there are almost 5 cards in circulation for every adult living in the UK. Futurists are already sounding the death knell of cash and it seems to be only a matter of time before that happens.

Different companies have different criteria for evaluating good credit. An employer, for example, might consider having zero credit cards as good credit. A credit card company might consider having credit cards that are spent to the limit as good credit, as long as the payment history is perfect. A mortgage company, on the other hand, does not consider maxed credit cards as favorable.

How does mortgage credit differ from other types of credit?

You might hear about the conventional wisdom of good credit. For example, it’s good credit when you have paid off your credit cards in full. Don’t carry a balance on your credit cards. Close credit card accounts when you don’t need them anymore.

While this is good, solid advice for debt management and control, if you’re trying to get a mortgage, it can work against you.

When mortgage companies evaluate applications, they like to see consistency. If you have a credit card, mortgage lenders want to see at least 24-36 months of perfect payment history on it; that is, 24-36 months with no breaks in between. If you’re fortunate enough to be able to pay your credit card off every month, you might want to rethink this strategy if a mortgage is in your future.

If you allow a paid-off credit card to remain that way for at least 2 straight months, your credit report will show a break in your payment history. Over the past 12 months, it might look something like this on your credit report:

CCCC CC CCCC

Mortgage lenders want to see this on your report:

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If you already have perfect credit with high scores, this isn’t much of an issue. However, if your scores are lower, or if you’re trying to rebuild credit, it is very highly recommended that you maintain a consistent payment history with no breaks. How can you do this without getting yourself into a mess of debt? You can put an inexpensive magazine subscription on your credit card, for example. That way, you never need to carry the card around, and it’s automatically charged for your subscription amount. Just make sure that you pay it off every month on time.

Conventional wisdom tells you to keep a zero, or almost zero, balance on your card. When it comes to mortgage lending, however, it is a dangerous trap. If you have a very low balance on a card, mortgage lenders will look at the “potential” of you maxing out that card. If you were to do that, your debt ratio will increase, and you could default on your loan. The higher your credit limit, the more this becomes an issue. A $300 credit card with a $20 balance won’t matter as much as a $3000 credit card with a $200 balance. In the latter scenario, you have the potential to add $2800 to your current debt load.

Generally, lenders like to see around 25% to 50% of your credit line used up. That way, it lessens the hit on your debt ratio if you were to max the card out. While this criterion by itself might not be enough to approve or deny you, it is definitely a factor worth considering.

If you have no balances on your cards, why not close the account? Then the low balance issue is moot, right? Unfortunately, closing accounts will lower your credit score. As well, lenders like to see at least 3-6 revolving accounts on your credit, and at least 1-2 installment loans. If you have too many revolving accounts with no balances, then you might want to close some. But if you’re in that 3-6 range, keep them open.

Obtain a copy of your credit report and see how your credit history reads. Make sure there aren’t any breaks in your history, especially if you’re a borderline applicant. Even if you do have a break, a high credit score will offset any penalties your potential lender might invoke. Keep the score as high as you can, and keep your credit history consistent.

Low interest credit cards can look very tempting as compared to the average credit card interest rates of 16%, or even 18% (APR). With a lower interest rate these cards will cost you less if you are not able to pay your credit card debts on a monthly basis. For long-term credit card debts, you will be looking for lower interest rates and these types of credit cards may offer you the best credit card rate, for your needs. You will be saving a substantial amount on your credit card debt as opposed to a standard high interest rate found on most cards.

However, there is a downside to low interest credit cards. This is the fact that you will not be offered any reward schemes. Reward schemes are perks associated with credit card use. For example you can earn 1%-5% credit on every purchase you make with a higher interest rate credit card. If you use your card frequently this can add up to substantial savings and reduce your overall payment to your credit card company.

However, if you do not use your credit card for many purchases this may not be worth it. Another consideration is if you regularly make rather small purchases. This will mean that rewards may again not be feasible for you. In this case a lower interest credit card might offer the best credit card rate for your needs.

If you make larger purchases then rewards may be the best thing for you, as the 1%-5% credits on each purchase will save you a considerable amount of money. Thus reducing your cost per purchase and decreasing the amount you owe to the credit card company. The savings may very likely offset higher interest rates and make a lower interest rate credit card not very practical.

If you are in the habit of paying off your credit card debts monthly you may want to consider the pros and cons of low interest credit cards. What you gain with low interest, you will lose with reward benefits. If you pay your credit card debts on time you will not be paying much interest, if any, and the lower interest rates will not really benefit you. However, the reward programs will benefit you on every purchase.

You can make fast comparisons of low interest credit cards on line and by this means get the best credit card interest rates. There are many websites available which show the different credit cards and what they are offering you. They have reviews and comparisons available to help you make an educated decision.

Now that you are aware of the advantages and disadvantages of low interest credit cards you can make an educated decision as to whether this type of card will work for you. Assess your needs and take a look at your purchase patterns. In this way you will be able to make the right decision on which credit card will be best for you and your needs.