How Does Your Credit Card Debt Affect a Bad Credit Mortgage Refinance?

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Many homeowners wonder how their credit card debt, whether high or low, affects their credit score and more importantly, what can they do about it. One of the first things you should understand is that while you can take steps to improve your bad credit, it takes time - six to twelve months - to make significant improvements. Credit card debt can affect your bad credit score in a number of ways. How you handle this debt can help or hinder you in your refinance.

What To Do, What To Avoid

You don't want to simply move your debt around from one account to another. This could potentially make your bad credit worse. Keep your credit card balances low but don't close your accounts. Closing your accounts could send the wrong sign to potential lenders that you don't think you can handle the credit. Conversely, don't go and open new credit cards thinking that new available credit will help you. This can backfire and prevent your home loan refinance. Lastly, limit your credit card spending to keep your balances at a manageable level.

Take Control

To qualify for a bad credit mortgage refinance you want your credit card debt clean. Pay your bills on time, but don't worry about paying the balance completely down. Try and aim for an open balance of less than half the total credit available. Make sure to get a copy of your credit report immediately to dispute anything incorrectly reported. Having bad credit is not the end of the world - you can still qualify for a mortgage refinance. Take control of your credit card debt as the first step towards achieving your goal.

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