It can happen to anyone. Credit card bills get out of hand, a payment is missed, or a co-borrower reneges on their financial obligations. Someday, you could face the harsh reality of being labeled a bad credit risk. If your money falls into disarray, you may need to bring out the most powerful tool you’ve got – your home – and turn things around with a new mortgage. As a financial solution, bad credit refinancing can help you achieve several goals.
First, you can refinance your existing mortgage to a more favorable rate or terms, and improve monthly cash-flow. Second, you could qualify for cash-out refinancing, which provides access to money from your home’s equity that you can use to pay off high-interest credit card debt. Finally, bad credit refinancing affords you an opportunity to recover from a financial “train wreck,” regain control of your money, and potentially improve your credit standing. Here’s how it works:
Many lenders specialize in helping borrowers with poor credit obtain new home loans. While you may not qualify for the lowest rates advertised, there is a great deal of competition between these lenders who are looking for your business. Be sure to compare offers from more than one source.
Usually, bad credit refinancing doesn’t require mountains of paperwork or a more elaborate application process; it simply means that your lender is willing to take on a less-than-perfect financial situation and that you agree to make your payments on time, every time.
Know the Credit Score
Each of the three major credit bureaus employs a formula to calculate your credit score. Generally, the two biggest factors are (1.) your payment history and (2.) the amount of money you owe. But other considerations – such as the length of time your accounts have been open and the number of accounts you have – can also play a role in determining your score.
With a bad credit refinance, you’ll have an opportunity to demonstrate your commitment to improving that credit score by making timely mortgage payments and curbing any negative spending habits. Pay all of your accounts on time, even if you can only manage the minimum requirement.
Check your credit report regularly, to ensure that there are no costly errors. If possible, close some of your high interest-bearing accounts. If you do not use all the credit available to you, and are genuinely making a dent in your debt, there could be an improvement in your credit score.
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