Tips For Improving Your Credit Score Before Refinancing
2. FHA Streamline Refinance
This option allows you to refinance an existing FHA loan without the usual credit check and income verification. In some cases, you can also get an FHA Streamline refinance without an appraisal.
- You must undergo the usual credit check requirement if you want to refinance a conventional loan into an FHA loan or vice versa.
- You must also see a tangible net benefit after your refinance. A tangible benefit might be a lower monthly payment or a lower interest rate.
- Your monthly premium cant increase by more than $50. If it does, youll need to conform to the full refinance standards.
- You can only have one 30-day late payment in the last year and none in the last 6 months.
3. Cash-Out Refinance
One important thing to remember about refinancing without a credit check: You can only refinance your rate or term. Youll need to have a minimum credit score of at least 620 if you want to take a cash-out refinance. This might be a “moderate credit” option for refinancing, but you can use the money to pay down additional debt which could further improve your credit score.
Mortgage loans have some of the lowest interest rates of any type of debt. The average fixed-rate mortgage loan has an APR under 3% as of this writing, and the average credit card has an APR of over 16%.
Taking a cash-out refinance and paying down what you owe can help you get back on track financially, particularly if you have a large amount of debt. You can consolidate your debt with one payment to your mortgage lender instead of worrying about missing payments across multiple cards. This can help you improve your score over time.
Take the first step toward the right mortgage.
Take some time to raise your score (and check your credit report for inaccuracies) before you refinance. Raising your credit score unlocks more refinancing options and can help you secure the lowest interest rate possible. Use these quick tips to improve your credit score.
Consider A Secured Credit Card
You might not qualify for a loan or traditional credit card. A secured card can allow you to build credit when you need to. You leave a deposit with your lender when you get a secured card. That deposit then becomes your line of credit.
For example, a lender might require a $500 deposit to open a card with a $500 limit. Your lender holds onto your deposit until you decide to close the card.
From there, a secured credit card works just like a normal credit card. You make purchases using your card and pay them off with interest each month. Then, your lender reports your payments to the credit reporting bureaus, which helps you build your score. Your lender keeps your initial deposit if you dont pay your bills.
Secured cards offer a fantastic way to build credit when you might have none, but remember that you must still make your payments on time. Just like an unsecured credit card, missed or late payments will hurt your score.
Keep Your Credit Utilization Low
Lets say you have a credit card with a $10,000 limit and you put $5,000 worth of expenses on it every month. In that case, you have a utilization ratio of 50%. If you use 100% of your available credit, you might hear someone say that youve “maxed out” your credit.
Lenders dont like to work with borrowers who have very high credit utilization ratios. Using too much of your available credit tells lenders that you might not have anything in savings. It can also mean that youre more likely to fall behind on your bills or miss a payment.