Bad Credit Refinancing Can Help Rebuild Credit
By Karen LawsonMortgage Credit Problems Columnist
Bad credit mortgage refinancing
can help you consolidate your consumer debts at a lower interest rate. You may
qualify for debt consolidation refinancing even if your credit isn't great;
this will depend on how much home equity you have and the details of your
recent credit history.
Improving Bad Credit
Takes Time
If your credit card balances are high, and you're paying late charges and overlimit fees, these can quickly add up, and snowball as balances increase and it becomes more difficult to make payments on time. You've probably seen "erase bad credit now" solicitations and advertisements, but think twice before looking for an instant fix. The only legitimate way to improve your credit score is to reduce debt and make your payments on time--eventually compiling a positive credit history. Refinancing your mortgage to consolidate debt can provide the following benefits:
Save Money On Credit Card Rates And Fees: If you're paying interest rates of 20% or more, along with other credit card fees, a bad credit refinance may help you repay your debt at a much lower interest rate. Although the cost of a bad credit mortgage may be higher than for standard mortgage loans, it is likely to be less than you're paying for consumer credit.
Consolidate Your Credit Card Balances Into Your Mortgage Payment: If you qualify for "cash out" refinancing, you'll be able to roll your credit card balances into your mortgage balance. Your mortgage payment may be higher, but the financing costs (APR) may be significantly lower when compared to APRs for consumer credit accounts.
Clearing the Slate: Refinancing is not a "do-over." You're transferring debt from your credit card balances to your mortgage, but it can have a refreshing effect if you've been making minimum payments for years. Consolidating debts through refinancing can seem like a fresh start, and may free up cash for establishing a cash-based household budget.
Prepare for Standard Mortgage Financing: Bad credit refinancing can help you qualify for standard mortgage financing. Typically, if you maintain a clean payment history for two years, you may qualify for a mortgage loan at lower costs. Lenders can provide more details about how this works.
Refinancing is a major financial decision, and it's important to understand all implications. Consulting a financial advisor or tax professional can help you select bad credit refinancing terms that match your needs.
About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.
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