| Not So Easy Bad Credit Approval |
| By Credit Federal |
Published
10/1/2007
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Financial News
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Bad Credit Approval Not So Easy Anymore
Although the Fed has lowered interest rates, bad credit approval is no longer easy and not just for high risk people.
As subprime credit woes began, a decrease in easy approval soon followed. Lenders no longer give easy approval and are intensifying the screenings of credit applications.
And even if you have a good credit score and a healthy bank account, you'll probably also notice the difference in how loan lenders and credit card issuers welcome your application. Here's what you can expect from them:
Mortgages - Several types of exotic mortgages; like the 2/28, the 3/27 and those which don't require proof of income, may disappear. And, the effects of the credit woe have extended beyond subprime. According to the Federal Reserve, about one in seven banks has hardened mortgage lending standards even for good credit borrowers. Lenders will likely be less giving on appraisals, stricter on documentation and less likely to finance 100%.
At the high end, rates on the 30-year jumbo (over $417,000) jumped nearly a percentage point between June and September.
If you have an adjustable rate mortgage, read your agreement to find out when your rate will reset, how high it will likely go and; certainly, how high it could go.
If it's coming due and will end up above 7%, consider refinancing to a fixed rate. You'll need 10% equity and a credit score above 660.
Home-equity loans and lines of credit - These are generally holding at about the prime rate if your credit score is higher than 680 and you can verify income. But you can't tap 100% of your home's equity anymore. In fact, expect to get 80%. Even if you can get a home equity loan or HELOC doesn't mean you should. Home prices are falling nationwide, and you don't want to borrow against shrinking equity unless it's the cheapest way to finance a necessary purchase like college or medical care.
Credit cards - These are really hurting from the subprime woes and issuing banks are looking to increase revenue. Credit card terms are a little higher, with Intro offers reducing from 12 months at 0% down to three months at 1.9%.
Issuers are increasingly triggering rate increases; for example, Discover raised its high risk customers from 17.99% to 18.99%* (*Rate as of the date of this article).
It's important to monitor your statement for any APR increases and to pay on time.
Auto loans - Car loans have hovered for the past year around 7.4%, with highs of 25% for bad credit people. So far these haven't felt the affects of subprime woes. If you are thinking about using a tax deductible HELOC to buy a new car, reconsider. Real estate is unstable, it's harder to get prime on a HELOC and paying it back requires discipline. Try for a 7% to 8% auto loan.
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