Bad Credit Refinancing - What You Should Know Before You Refinance

Navigation: Main page

 Print this page Submit articleComment article

Author: Debt Free

Article source: http://www.articlealley.com/. Used with author's permission.

You may think just because you have bad credit you won't be refinancing your home mortgage any time soon. Well, cheer up. You're so wrong. With very little patience, you could be on your way to refinancing your mortgage. One key to refinancing if you have bad credit is to mitigate the credit situation a bit. You can best accomplish this by raising your credit score.

If it's below 680 or so, you may fall into the sub-prime mortgage category. In the past, you could drift down to the 650 range with some mortgage lenders before you triggered their sub-prime threshold. You'll save substantial money on your refinance by giving the 'ole FICO score a little boost. You can probably make most of this happen in just a few weeks, possibly sooner. You may think your credit's completely in the dumpster, but your credit may not be as bad as you believe. If it turns out you actually do have bad credit, you'll benefit even more from raising it before you do your refinancing.

The first thing you should do is get your free credit report from any one of the three credit reporting bureaus; Equifax, Experian, or TransUnion. Relax, it won't cost you a cent. You now have the right to receive one report for free each year from each of the three credit agencies. Most experts advise you do so as the first step to getting a handle on your credit score. In addition, you should arrange to receive your reports staggered at four month intervals. That way you'll never be more than a few months from a fresh credit report.

Once you have your credit report, you can see if there is anything you can clear up in the short term. About 25% of Americans have credit reports with at least some inaccurate entries, so there is a decent chance you'll have something on there you can clear up to start the process of raising your score. You need to write letters to the creditors that are incorrectly reporting anything on your report.

Some of the errors you may encounter are: accounts listed as owing that are actually paid off and accounts that aren't really yours. They may belong to someone with a similar name or social security number. When disputing any credit report entries, make sure you carefully document your position. Never send any of the original documentation, only send copies. Once you get any credit inaccuracies resolved, it's time to move on to some other things you can do to help your credit score in the short term.

Why should you be so concerned with raising your credit score in the short term? Because you'll save substantial money in interest charges, that's why. There are other benefits as well. Your mortgage will likely close faster, and you'll have a greater pool of lenders to choose from. So, even though you may have bad credit, you should aim to raise your credit score as high as possible before you try refinancing your mortgage.

What else can you do to raise your credit score before you get that mortgage? The most important thing you can do to help raise your credit score is avoid late payments. If you have any payments that are late, send them in, as soon as possible. Lenders look at recent late payments more closely than those that are aged at least 2 years.

The next thing you should examine is your credit utilization score. That measures the percentage of your available revolving credit that you are currently using. If you have credit card limits totaling $25,000, and your outstanding credit card balances total $15,000, your credit utilization score is 60%. One note here; make sure your creditors are correctly reporting your credit card limits. If they are incorrectly stating them as too low, it will likewise lower your credit utilization score.

The strategy is to rapidly nab a few extra credit score points by paying down as much of your debt as possible. Your revolving accounts, such as credit cards and store charge cards are the most important for this strategy. That will also help your debt to income ratio, another figure used by mortgage lenders to determine your loan eligibility.

If you can raise your credit score a few points, you'll fend much better on the mortgage market. You may still need to pay a higher interest rate than if you had great credit, but you can get the benefits of refinancing nonetheless.

Discover more mortgage and refinancing strategies that will save you money and help you get your refinance quickly with the minimum of hassle. You work too hard to worked over by your lender. Go to Bad Credit Refinancing Secrets