Mortgage Refinance News: Tightening Standards Calls for Credit Clean-up

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Due to the recent turbulence in the mortgage business, many lenders are gradually applying stricter lending rules. As a result, some borrowers with bad credit may not have as many options as they did just two years ago. For the best chance of getting a bad credit mortgage refinance, take a look at your credit report and see what can be done to clean things up.

The Federal Reserve Bank conducted a survey in April 2007 in which they asked senior lending officers in the mortgage banking industry how tightening standards were affecting borrowers. Not surprisingly, only 15 percent of those surveyed indicated tighter standards for those with good credit. Forty-five percent of the lenders who write non-traditional home loans such as Option ARMS noted that their lending criteria had become somewhat or considerably tighter. And 56 percent of lenders who offer loans to bad credit borrowers indicated they had tightened their lending practices.

Before You Apply for a Mortgage Refinance

What does all this mean for borrowers with bad credit? You'll have to spend more time checking with different mortgage lenders in order to find someone who can help you with your refinance.

Tips for Cleaning Up Your Credit

Here are some of the top suggestions for improving your bad credit:
  • Pay all of your bills on time.
  • Catch up on any missed or late payments as quickly as possible and resolve any collections accounts.
  • Don't open any new accounts.
  • Don't close all of your accounts -- keep them open with a small balance.
  • Check your credit report for any errors. If you find inaccuracies, dispute them right away.
While you might find it in your best interest to spend some time repairing your credit before getting a mortgage refinance, if you are having trouble making your mortgage payments, don't hesitate to call your mortgage lender. Waiting around might make things worse and limit your options.

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