A: A private investor is an individual who lends out their own funds to borrowers who are unable to obtain a loan from a traditional lender such as a bank. It is also possible for private investors to pool their money into a fund that lends out money on a larger scale. Private investors are often wealthy or retired individuals who want a better return on their investments than they could expect to make in the stock market or other investment vehicles.

A private investor is essentially the same thing as a hard money lender. A private lender differs from a subprime lender in that the latter still funds loan through a lending institution such as a bank, although the interest rate is higher than a traditional conforming loan.

Q: Why would a bad credit lender fund my loan when traditional banks would not?

A: Hard money lenders, sub prime and bad credit lenders are often referred to as “high risk lenders.” These lenders have a unique understanding of specific types of real estate situations and markets. As long as the lending situation fits into the lenders comfort zone, they will usually make the loan. It isn’t that a bad credit lender gravitates towards overly risky loans or situations. Rather, there are additional safeguards in place for a bad credit lender. Namely, a borrower must have a 20% or higher equity stake in a property to qualify for a bad credit loan — the loan is therefore secured by a larger property ownership portion than many traditional loans.

In addition, the bad credit lender receives a higher rate of return than a bank would with a traditional conforming loan. The greater the risk for the lender, the higher the interest rate for the borrower. If one or more traditional lending institutions deny a borrower’s loan because of credit problems or a small level of liquid assets to use as collateral, a borrower will need to apply with a subprime, hard money or bad credit lender.

Q: If I qualify for a hard money loan, is there a way to eventually work into a normal loan?

A: Of course. A bad credit loan should be a short term loan – anywhere from several months to 2 years. After a borrower has spent a year or 18 months paying off their private loan, our mortgage team will try to transition you into a subprime or alt A loan. Hopefully, this is enough time to rebuild your credit and get on a more stable footing financially.

Q: What kind of financial documentation does a borrower have to show to qualify for a bad credit loan?

A: While the type of documentation needed to secure a loan will vary from lender to lender, most require either bank statements or income tax returns. The lender will usually need to see an appraisal of the property, as well as the title to make sure that the borrower is indeed the owner and to see if there are any existing liens or legal issues with the property in question. Each bad credit lender will analyze the necessary documents and then decide whether to provide the loan.

Q: What if I have damaged or bad credit as well as a low FICO score?

A: The majority of bad credit borrowers apply for a bad credit loan due to damaged credit along with a lower than normal FICO score The whole point of hard money or private loans is to provide a loan to an individual with past, recent, or current credit issues so they can rebuild their credit and eventually refinance to a more traditional type loan.

Q: What is my FICO score and how can I find out what mine is?

A: A FICO score is a basic credit score that estimates the creditworthiness of a borrower and is used by financial institutions to determine credit limits and interest rates. FICO scores are held by the three major U.S. credit agencies (Equifax, Experian and Trans Union) and all vary slightly depending on the formula used to generate the score.

FICO scores range from about 300 to 850. A score above 720 is considered to be “good credit,” while a score below 600 is considered to be fair to poor. Conforming lenders want to see a credit score of usually 640 and higher. High risk lenders will look at credit scores as low as 500, as long as the borrower has 25% or higher equity in a property for collateral.

Q: How do I Apply for a Bad Credit Loan?

A: Do a search on the internet for “bad credit loans” or “bad credit lenders” and will find different bad credit lenders that offer bad credit loans in various states. Then either call them and explain your situation to them or fill out their short online application to be considered for a hard money loan. Be sure to read the language of the loan documentation carefully to protect your self from predatory lending.

Corey Senn is a Senior Partner with Bad Credit Lender, a California based private lender that specializes in hard money loans and bad credit loans. Located in La Jolla, California, Bad Credit Lender provides competitive private California hard money loans, bad credit home loans, and bridge loans. In addition, Corey is one of the main contributors to the California Home Mortgage Loan web blog.

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The companies generally do not look at the actual credit report. They just look out for the credit score. In fact they receive the credit score from any of the three major national credit depositories – Equifax, Experian and TransUnion. Credit scoring is a method to determine the likelihood that credit users will pay their bills.

Credit scores are prepared by analyzing a borrower’s credit history. The factors considered while calculating a credit score are:

• The duration for which credit is used.
• The amount of credit used versus the amount of credit available.
• Record of whether payments are made in time.
• Employment history.
• Length of time at present residence.
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

Now the insurance score is based on the FICO score. It is a credit score developed by Fair Isaac & Co.

Raise the FICO score: One can raise the FICO score over a period of time through the following ways:

• Pay your bills in time. Late payments can have a serious impact on your score.
• Reduce your credit-card balances. If you are “maxed” out on your credit cards, this will affect your credit score negatively.
• If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.

Insurance score: There is another concept called insurance score which also plays an important role in determining the cost of insurance. An insurance score predicts whether a person is likely to file a claim in the future. This helps the insurance companies to determine the amount of premium to be charged. An insurance score is a numerical ranking based on a person’s credit history. It predicts the average claim behavior of a group of people with essentially the same credit history. Typically a good score is assumed to be above 760 and a bad score is below 600. People with low insurance scores tend to file more claims. But there are exceptions. For example, It has been found that teenagers as a group have more accidents than people of other age groups. But there are some teenager drivers who never had an accident.

Insurance scores do not include data on race or income because companies do not collect this information for insurance. Insurance score is not much concerned with the tendency to take a new credit. Instead it focuses on the issue of stability.

Studies have shown that how a person constructs his financial planning is a good predictor of insurance claims. It is accepted that people who manage their finances well can also manage other important aspects of their lives, such as driving a car. The factors such as geographical area, previous crashes, age and gender, insurance scores collectively enable auto insurers to price more accurately, so that people less likely to file a claim pay less for their insurance than people who are more likely to file a claim. Insurance scores are useful to the insurer to differentiate between lower and higher insurance risks people and thus to charge a respective premium.

There exists a kind of debate regarding the use of insurance credit scoring. Insurance companies claim that the use of these scores helps them to issue new and renewal insurance policies based on objective, accurate, and consistent information, better anticipate claims and better control risk. This enables them to offer more insurance coverage to more consumers at a fairer cost.

Opponents of insurance credit score argue that companies can use insurance credit scores to non-renew coverage regardless of whether a claim has been filed or premiums have been paid in time and that credit scoring focuses on a consumer’s economic status. People with poor credit scores sometimes pay 4 to 5 times as much as the other consumer.

One aspect of insurance score is very important. While it is easy to obtain the credit score, it is difficult to get the insurance score. There is no hard and fast rule on the part of companies to hand it over and most companies don’t.

This article may be freely republished in any electronic media provided author biobox and the links are kept as it is.

Evan T. Smith is a contributing author to the Insurance Discussion Board.

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