Bad Credit Q & A

Bankruptcies & Foreclosures FAQs.

Are you considering buying a home in Texas but unsure where to start because of bad credit? In this article, we’ll review the basics so you can make an informed decision.

What is Bad Credit?

Bad credit is a low credit score that will hinder your loan application process. According to FICO, credit scores between 300 and 579 are considered “poor” scores. If your credit score falls into this range, getting approved for a home loan could be difficult.

What Can I Do to Help My Credit Score?

The first step is to understand how your credit score is calculated. Your credit score is based on five factors: payment history, the amount owed, length of credit history, new credit, and types of credit used. Once you understand these factors, you can start making changes to improve your credit score.

  • Payment History: Make sure all payments are up-to-date and paid on time monthly.
  • Amount Owed: Try to keep your balances as low as possible. The lower your balances, the better.
  • Length of Credit History: Try to maintain one or two long-term loans/credit cards; these will help your score more than short-term ones.
  • New Credit: Don’t take out too many loans or open too many accounts simultaneously. This could hurt your score.
  • Types of Credit Used: A mix of installment loans (like auto loans) and revolving credit (like credit cards) is best for your score.

What Home Loan Options Are Available with Bad Credit?

If your credit score isn’t in ideal shape, don’t worry—there are still options available for home loans. Here are some common loan options you may want to consider:

  • FHA Loans: Federal Housing Administration (FHA) loans are government-insured mortgages with less stringent requirements than conventional loans. FHA loans allow borrowers with poor credit scores to get approved with a small down payment.
  • VA Loans: Veterans Affairs (VA) loans are another option for those with bad credit. These are available to current and former members of the military who can prove their service and meet certain income requirements.
  • USDA Loans: U.S. Department of Agriculture (USDA) loans are available to borrowers who purchase properties in rural areas and offer favorable terms for buyers with bad credit. These loans are also typically backed by the government.

How do you clear up bad credit?

There is no fast and easy way to repair damaged credit that takes months or years. The law allows negative information to appear on an individual’s credit record from 7 to 10 years.

The first step is to check your existing credit record. Anyone can obtain copies of their own credit report free of charge if they have been turned down for credit recently. For a fee, people can request copies of their own credit report from the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111, and Trans Union at (312) 408-1050. The bureau should also provide instructions on how to read the report and dispute any inaccuracies it contains.

If the credit report is correct, take care of any outstanding delinquent obligations first.


  • “Rebuild Your Credit: Law Form Kit,” Nolo Press, Berkeley, Calif.; 1993.

What options are there after Chapter 11?

A previous bankruptcy can remain in a credit file for seven to 10 years.

Depending on when the bankruptcy was discharged and what kind of credit a borrower has reestablished since then, it needn’t be an obstacle to obtaining loan approval. The longer ago the discharge occurred, the better off a loan applicant will be.

Many lenders also will take into account the circumstances surrounding bankruptcy. For example, they may look more favorably upon you as a borrower if your bankruptcy was due to financial reverses you suffered due to your employer’s own financial difficulties. On the other hand, if you declared bankruptcy because you overextended your personal credit lines and lived beyond your means, a lender probably won’t be as forgiving.

If you are in the latter category, you may want to contact a mortgage broker who may qualify them for a “b” or “c,” loan, which usually comes at a higher interest rate.


  • “Rebuild Your Credit: Law Form Kit,” Nolo Press, Berkeley, Calif.; 1993.

Can I refinance after bankruptcy?

Refinancing may be prudent but could be difficult after bankruptcy. If you’re considering bankruptcy, you may want to go to your current lender and explain the situation. If you have been current on your payments, the lender may accommodate and refinance your loan, easing your financial situation.

How long do bankruptcies and foreclosures stay on a credit report?

Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.

Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision. For example, a lender may be more sympathetic if you went through bankruptcy because your employer had financial difficulties. If you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably would be less inclined to be flexible.

What can I do if I have bad credit?

While some people have rebounded to buy another home within several years, credit problems stemming from a foreclosure can continue much longer for others.

Real estate experts say you should be candid with your lender in discussing these issues. If your bankruptcy resulted from losing your job due to your employer’s financial difficulties, a lender probably will look upon your situation more favorably than if overextended credit cards caused your bankruptcy.


  • “Rebuild Your Credit: Law Form Kit,” Nolo Press, Berkeley, Calif.; 1993.

How bad is a previous foreclosure on credit?

Property foreclosure is one of the most damaging events in a borrower’s credit history. In terms of the effect on credit history, a deed instead of foreclosure or a short sale is not as adverse an event as is a forced foreclosure.