Refinancing With a Very Low Credit Score
Refinancing can help immensely whether you are looking to lower down your rate of interest and the monthly payments of the auto or home loan. Refinancing with A FICO score lower than 600 is quite a challange. Usually, it is easy to secure refinancing, because it is the automobile or the home that secures the loan under it. Securing a loan always depends on your credit score, a good score is the only way to get refinanced without hassles. Generally, if you want refinancing with a low credit score it will be difficult as lenders are very careful about it.
It’s Not You It’s Your Credit Score
Most of the lenders use credit scores as the basic requirement for approving and underwriting loans. A credit score denotes your ability to pay off the loans. If the bad credit history on your application gets you a very bad credit score, then you will not be able to secure any kind of loan from the lender.
A good credit score is very important because it is the key to a successful application. So, in order to secure the loan, you must improve the bad credit score rather than applying to secure a loan. First of all, evaluate your personal credit report.
Refinancing With A Credit Score Lower Than 600
Usually, it is possible to secure a refinance with a low score, the lenders will not approve any score that is lower than 600. Recheck your credit score and study the report in detail to know your shortcomings. It will be much better to postpone your refinance plans and concentrate on improving the bad credit score.
Even FHA home loans are not processed with scores lower than 600. Though the official FHA minimum score is 580, for the no downpayment loans, the lenders who lend the mortgage request a score higher than 620.
Try to follow good credit habits. You can increase your credit score in just a matter of months by paying the bills on time. Also reducing total amount of debts can give you 30 or even more points which can be very beneficial for your credit score and report. Though, you might still not be eligible for securing prime rates, an increase in the credit score can result in a lower rate of interest. In short, you might be charged an interest rate of 10 percent rather than 15 percent.
Why Do You Want To Refinance Now?
Identify your reasons for refinancing because the lenders ask an appropriate reason for it. If you want an auto loan, you will be asked if you wish to extend the term or want a reduction in the interest rate for a lower payment. If you wish to secure a home loan, you might want to have the interest to a fixed one or may be also want to have cash in order to repay the loans.
You should also find a co-signer because it will help you to increase your chances of securing the loan. Usually, the lenders inquire about your credit report and income from the co-signers. If your application is approved, then the co-signer will hold the responsibility of paying off the debts in case you stop making payments.
Prepare A Low Credit Refinancing Work Plan
Get in touch with a loan broker; however, you must expect higher rates of interest with a bad credit history. Find a reputable broker and tell him/ her that you want refinancing with a FICO score lower than 600. They will help you contact the honest lenders who willingly offer credit to people with low scores.
So What Is The Next Step?
If you will do nothing.. don’t expect anything to happen. You must bump your credit score up! It will give you better leverage when facing the lenders, and better negotiation position when applying for any financial need.
Lets not forget you are probably paying $500-$1000 extra per year in higher interest rates, and credit payments.
If your score is below 700, you might want to clean it yourself – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket. Don’t be cheap when it comes to financial education.. Ignorance costs more.