Bad Credit? Refinancing Is Still a Possibility
- posted 11.12.2012
- Brian Brice
- Personal Finance
Refinance rates have recently reached historic lows, so it's no surprise so many homeowners have been jumping at the chance to refinance their loan. As we've covered here before, there are a number of beneficial reasons to refinance, however many homeowners with less-than-desirable credit may feel they can't take advantage of this opportunity. While there are limitations, those with a low FICO score should not count themselves out.
Improve Your Chances
Taking steps to repair or improve your credit before seeking a refinance is the best way to better your odds. Obtaining a copy of your credit report from one of the three major credit agencies (Equifax, Experian, TransUnion) is a great start. For a fee you can even get a comprehensive report that shows results from all three. From there, you have a number of options. The following is a checklist of things you can do to polish up your credit and make your case more appealing to a potential lender:
Review your credit report(s) carefully for anything suspicious or questionable. According to the Fair Credit Reporting Act (FCRA) both the credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information. Notify them of any inconsistencies in your report.
Pay Down Credit Cards with High Balances
Your credit score is partially based on how close you are to your maximum credit limit on any given credit card. Lowering the amount you owe on nearly-maxed-out cards can improve your standing. If you have multiple cards, especially one with little or no balance, consider a balance transfer. Think of this as stacks of blocks. A stack 20 blocks high will appear unstable, but splitting that into 2 stacks of 10 blocks will be much more stable.
Get a Co-Signer
Someone with a solid record can essentially substitute their credit rating in place of yours in order to get you a desirable rate on your refinance. This option should be very cautiously considered though as any activity will affect the co-signer and a mishap could damage their credit as well as their relationship with you.
Seek Credit Counseling
It may seem like a contradictory option, but paying a financial professional to help streamline your budget could save you quite a bit in the long run. A counselor could not only help you make the changes necessary to get your credit in line, but also help structure an efficient payment plan once you've been approved for your refinance.
Do the Math
Shop around before making a decision. Likely, different lenders will offer you different terms & rates. Seek a quote from several before settling on one. It may sound obvious, but be sure to include your current lender. There's a good chance they will offer you a competitive rate to keep your business which won't only save you money, but also the time & energy of filing paperwork with someone new.
Also, plan ahead. All of these options present great opportunities to save you money and help you refinance your home, but each is dependent on a number of factors and may have a different effect on your unique situation. Lay out the details, analyze the numbers and weigh the benefits to make sure you achieve the best possible refinance for your home.