One of the most important things a bank looks at before granting a mortgage is the prospective borrower’s credit history. By considering an applicant’s credit score, lenders make a judgement about that person’s ability to repay a loan.

But what if your credit history is weak? Lenders will still offer mortgages, but you may have to shop around and pay a significantly higher interest rate.

The score determines the lender

If you have an excellent credit score, a major bank will see you as someone who has consistently paid their bills on time. Assuming you have the necessary income and down payment, it’s likely the bank will be glad to approve you for a mortgage. It will also probably offer you a great rate.

If your credit score is low, a major bank will likely decide to pass on giving you a mortgage. But a financial institution that deals with people who have blemished credit might be willing to offer you a mortgage. However, the mortgage rate will be higher.

The third category of mortgage applicants are known as subprime borrowers. Their credit scores are very low. As such, lenders consider them the riskiest category. Only alternative lenders charging much higher interest rates will consider these applicants.

Save a bigger down payment and expect higher fees

If you do have bad credit, having a bigger down payment ready is one way to make a lender more comfortable with the idea of granting a mortgage. By being able to put down 20% or more, you’re considered to be less risky than someone who has a smaller down payment.

In addition to higher mortgage rates, weaker credit applicants should also expect to be hit with higher fees. Lenders typically charge up to 1% of the mortgage loan value to process bad credit applications.

Finally, even though your credit history is bad, that doesn’t mean it can’t be improved. Being diligent about paying off your bills and debts will go some way to improving your credit score in the future.