A good credit score can definitely help when you’re trying to refinance your mortgage. Refinancing’s benefits are numerous, and if you’re looking to lower your interest rate and monthly payment, a refinance is the quickest way to accomplish the goal. Your FICO credit score is a three-digit number that can range from 300-850. The FICO score is used to determine a person’s creditworthiness; a lower score indicates problems, and a higher score indicates a person’s wise use of credit. There are different factors that make up a score, such as debts, payment history, length of credit history, number of inquiries, and types of credit accounts.
A mortgage refinance involves an application for credit, along with a review of your financial situation and your credit history. Both of these elements are integral to the loan approval process- having a prior home loan doesn’t automatically mean that your refi will be approved. A good FICO score helps to ease the approval process because it demonstrates that you have good credit habits, and lenders see you as less of a risk.
Almost every lender has a minimum credit score in mind when they look at your file. A superb rating isn’t necessary, but most lenders would like to see a score in the high 600s. If you can get your score up over 700, you will likely get the lowest rate and the best terms on your mortgage refinance. A score lower than 680 doesn’t mean automatic disqualification, but you’ll need to look harder to find a lender. For these situations, the FHA offers loans with a minimum score requirement of 620.
The way you deal with debt and credit has a direct effect on your score. Before getting refinanced, check your score and your credit history. Annual credit report makes it easy to do both; just go to the website and input some basic information. You can get one free report each year from each of the three main credit reporting bureaus (TransUnion, Equifax and Experian). Other ways to raise your score include lowering your debt threshold and paying all your bills on time.
Borrowers often decide to refinance in order to get a lower monthly payment and a lower interest rate. If you cannot get refinanced due to a low FICO score, you can talk to your lender or financial adviser about alternative refinancing methods. Depending on your income and employment situation, you may be eligible for a modification. Modifications are similar to mortgage refinances in that they provide a better rate and a lower monthly payment, but you won’t have to apply for a new mortgage.