With high unemployment, many Americans have had their credit rating hit hard over the past couple of years. Even people with stellar credit have dropped points after late credit card or loan payments due to the recent economic downturn. Now that the economy has picked back up,and people are heading to work, many families want to refinance or buy a home but are worried their bad credit will make it difficult to do so.
FHA Streamline Refinance
Homeowners with existing FHA mortgage loans can refinance today, even with bad credit. The FHA streamline refinance program does not verify your current credit information so you can save money without waiting to rebuild your credit score. This is the best scenario because when you have extra cash in your pocket, you can use it to make credit card payments and start paying off debt. This FHA streamline refinance program is one of the reasons many homeowners decide to use the FHA when purchasing their home in the first place.
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How to Fix Your Credit Score
If you have bad credit and want to buy or refinance your home, there is hope. These simple techniques can help you to rebuild your credit and qualify for a mortgage loan.
• Credit Cards Usage – Your credit score will improve if you can pay down your credit cards to less than 50% of their limit. For example if your limit is $1,000 pay the card down to $480. If you can pay them down to under 30% that is even better.
• Paying Off Debts – Speak with your mortgage lender about a cash out refinance to consolidate your debts. If you don’t qualify yet, start by paying off the smallest credit cards first. By eliminating your smaller debts,you will improve your credit score and free up cash flow.
• Judgments and Collections – Pay off any judgments and collections that you have first. If you don’t have enough money for the entire balance, call the company and see if they will settle for a lesser amount. They typically will since something is better than no payment at all. Make sure you get the agreement in writing and a written statement that the debt has been paid in full. Submit a copy to the credit bureaus to have it removed from your report.
• Prove it or Lose it – In order to have something report to the credit bureau a company must have a record of the transaction and why they put it on your credit in the first place. You can write a letter to the credit bureaus disputing negative or incorrect information. If the company that reported you cannot prove it, the credit bureau will be forced to remove it from your report.
• Automatic Payments – If you have the money to pay all of your bills on time, but are too busy to remember, sign up for automatic payments. You can ask your employer to direct deposit into your bank account and have your bills paid using the banks bill pay system or automatic payments originated by your lender. This will keep your payments on time and improve your credit score.
Your mortgage lender can sit down with you, go over your credit report, and provide more ideas on how to improve your credit scores. Managing your finances is an important step to keeping your bills affordable, as good credit leads to lower interest rates on your home loan, car loans, and credit cards. The lower your interest rates, the less you have to pay on a monthly basis.
For more information on refinancing or buying a home with bad credit contact,an FHA approved lender today.
