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Refinance With Poor Credit

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Many individuals with poor credit believe that they are not eligible to refinance their home. While you may not qualify for the best rate to refinance, you may be able to refinance with poor credit and begin to manage your debt by creating a new loan on your home at a lower interest rate. In addition, if you have an adjustable rate mortgage that is about to change , you may want to refinance into a fixed rate mortgage to avoid the adjusted rate.  


First, determine your credit score before you begin shopping around for the best rate available given your credit score. By law the three credit bureaus must provide you with a free copy of your credit report every 12 months. You can obtain a free credit report from each of the three agencies by visiting http://www.annualcreditreport.com. It is important for you to review the report to determine if any misrepresentations appear. If you find any discrepancies with your records, you should contact the credit bureau immediately. 


Next, determine if you can wait to refinance while you begin to repair your credit. For example, if you have made a few late payments on your credit card or your credit card is reaching its maximum limit, consider practicing some good credit habits to try to improve your credit prior to refinancing your mortgage. For example, make all payments on time and pay more than the minimum monthly payment toward your debt. It is possible for your credit score to improve in as little as one month if you make big changes to your debt like pay off your high balance credit cards. If you can wait, check back on your credit score within a year to see if your changes have improved your credit score. An improved credit score will help you obtain a better refinance rate. If you cannot wait to refinance, there are several things to consider before you refinance with poor credit. 


Shop around for the best rates with as many lenders as possible if you are still interested in refinancing with poor credit. Be advised, however, that your poor credit will make it more difficult for you to refinance, and you may not receive the best rate available for your loan. In general, the lower your credit score, the higher the interest rate is going to be. In some cases your current score may be lower than one you may qualify for given your poor credit. In addition, if your low credit score is due to missed mortgage payments, you may be unable to refinance at all. After you shop around for rates, compare your current rate with rates available to you before making a decision regarding whether you should refinance with poor credit. Also consider that a lender will charge you a fee to refinance your loan no matter your credit score.


If you have additional questions regarding how to refinance with poor credit, contact a mortgage broker or non-profit credit counseling organization. Obtaining a refinanced loan with poor credit can be a complicated process, with many decisions to make.  Therefore, to learn more about dealing with debt, visit www.ftc.gov/MoneyMatters. In addition, if you have questions regarding your rights in terms of debt collection, visit http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm.

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Elizabeth StockStaff Writer
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