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How to Refinance Your Mortgage With Bad Credit

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Our goal here at Credible is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.

A low credit score doesn’t mean you can’t refinance your mortgage. In fact, there are many refinancing options to consider if you have bad credit.

If you have bad credit and are looking to refinance your mortgage, here’s what you should know:

How to refinance a mortgage with bad credit

If you have poor credit and aren’t sure where to start, follow these steps to get started:

  1. Improve your credit score
  2. Consider a co-borrower
  3. Compare bad credit mortgage refinance programs
  4. Check with your current lender
  5. Compare rates from multiple lenders

1. Improve your credit score

After checking your credit and knowing what your current credit score is, it’s a good idea to see how you can improve it before applying for your refinance.

To improve your credit quickly, here are a few things you can try:

  • Ask for a credit line increase on a current credit card
  • Become an authorized user on someone else’s account or credit card
  • Pay off your debt as much as possible
  • Don’t close old accounts (like credit cards)

Learn More: How to Improve Your Credit Score in 5 Steps

2. Consider a co-borrower

If you have a spouse, partner, or trusted friend with good credit, consider asking them to apply for the loan with you.

With their name on the application, lenders will look at both credit profiles and incomes, giving you a better shot at approval if your co-borrower is more creditworthy.

Just make sure the co-borrower understands their obligations. For example, if you’re unable to make payments on the loan, they’d have to repay it.

3. Compare bad credit mortgage refinance programs

Next, you should research bad credit refinance programs to see which loans you might be eligible for. Having a good idea of what loan product you’ll be using can help you when shopping around for lenders.

4. Check with your current lender

Get a refinancing quote from your current lender. If you’ve paid your loan on time consistently and have a good history with them, they might be willing to refinance your loan without a credit check — or at least look past that score and consider other factors when evaluating your application.

A current and solid relationship with a lender can go a long way, so it never hurts to ask.

Keep Reading: How to Refinance Your Mortgage in 4 Easy Steps

5. Compare rates from multiple lenders

Comparing rates from multiple lenders is one of the best ways to find the best loan and interest rate for you — whether you have good or bad credit.

Credible Operations, Inc. lets you shop for prequalified refinancing rates from all of our partner lenders in the table below by filling out just one form.

Requirements to refinance your mortgage with bad credit

ScenariosIs refinancing student loans a good idea?
You have high-interest student loan debtYes, you should refinance
You want to pay off your debt earlyYes, you should refinance
You want to switch interest rate typesYes, you should refinance
You have multiple loans and want to simplify your paymentsStudent loan refinancing probably makes sense
You have reliable income and good creditStudent loan refinancing probably makes sense
You’re eligible for student loan forgivenessNo, you shouldn’t refinance
You have low or unsteady incomeNo, you shouldn’t refinance
You have poor credit and no access to a creditworthy cosignerNo, you shouldn’t refinance
Your loan already has a low interest rateNo, you shouldn’t refinance

Find Out: When to Refinance a Mortgage: Is Now The Best Time?

Pros and cons of bad credit mortgage refinance options

FHA rate and term refinance

Rate and term refinancing is intended to help borrowers change their interest rate, loan term, or both. This often results in a lower monthly payment.

Pros:

  • Lower credit score requirements
  • Can be used to refinance non-FHA loans
  • Can refinance up to 97.5% of your home’s value, but a lower cap applies with a lower credit score

Cons:

  • Requires mortgage insurance
  • No cash-out allowed
  • Requires new appraisal

Learn: How to Get the Best Mortgage Rates

FHA cash-out refinance

With a cash-out refinance, you can replace your existing mortgage loan and take out some extra cash from the equity you have in your home.

Just keep in mind, your new loan will have a higher balance, which could mean a higher monthly payment.

Pros:

  • Low credit score requirements
  • Can be used to refinance non-FHA loans

Cons:

  • Requires mortgage insurance
  • Requires new appraisal
  • Can only refinance up to 80% of your home value

FHA streamline refinance

FHA’s streamline program is designed to ease the refinancing process for existing FHA borrowers.

In many cases, it requires no appraisal, no credit check, and no income verification, and documentation requirements are reduced.

Pros:

  • Credit check might not be required
  • Appraisal might not be required

Cons:

  • Requires mortgage insurance
  • Must already have an FHA loan

VA rate and term refinance (IRRRL)

The Department of Veterans Affairs also offers a rate and term refinance program called the Interest Rate Reduction Refinance Loan (IRRRL).

It’s only available to eligible military members, veterans, and their spouses (under limited circumstances).

Pros:

  • No credit or income check
  • No appraisal
  • Can roll your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of your home’s value

Cons:

  • Only available to eligible veterans and military members
  • You must already have a VA loan
  • Requires a funding fee

Check Out: Refinance Closing Costs: How to Lower and Avoid Fees

VA cash-out refinance

You can also do a cash-out refinance of existing VA loans if you’re a military member or veteran. The VA also allows you to finance your closing costs, making the refinance very affordable.

Pros:

  • Can roll your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of your home’s value

Cons:

  • Only available to eligible veterans and military members
  • You must already have a VA loan
  • Requires a funding fee
  • Requires an appraisal
  • Requires a credit check

Alternative or non-prime lending

If you don’t qualify for any of the above programs, seeking out an alternative or non-prime lender could be your best bet.

These lenders don’t use the same standards as FHA, VA, and other government-insured programs, so they typically have less strict requirements when it comes to credit score.

Pros:

  • Might allow lower credit scores than other programs
  • May allow bankruptcies, foreclosures, etc.

Cons:

  • Usually come with higher interest rates and fees
  • Requirements vary greatly from one lender to the next
Find out if refinancing is right for you

  • Actual rates from multiple lenders – In 3 minutes, get actual prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire origination process from rate comparison up to closing, all on Credible.

Find My Refi Rate
Checking rates will not affect your credit

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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Bad Credit

Can I be denied a job due to bad credit?

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Can I be denied a job due to bad credit?
Image source: Getty Images


People often worry about their credit history when it comes to applying for a new credit card, a mortgage or a car loan. If you have poor credit, should you also be concerned about finding work? Can you be denied a job due to bad credit?

Let’s examine the facts.

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What is bad credit anyway?

Bad credit is basically a negative assessment of your finances based on your history of borrowing. Bad credit implies that you have a bad track record with lenders. This is most likely because you have a pattern of not paying your bills on time or defaulting on your loans.

Is it legal for employers to check my credit report?

Law and finance firms are legally required to perform credit checks on potential employees. However, other kinds of employers can also conduct credit checks on you before they hire you. But they must ask for your permission before they do so.

In many cases, a credit check will be performed by a company if the role you are applying for involves dealing with large amounts of cash.

Why might employers want to check my report?

There are many reasons an employer might want to check your report. For example, they might want to ensure that:

  • You are who you say you are.
  • You have a good track record of managing money.
  • It’s not too much of a risk to let your manage money.
  • Your financial behaviour will not affect your work performance.

Could you be rewarded for your everyday spending?

Rewards credit cards include schemes that reward you simply for using your credit card. When you spend money on a rewards card you could earn loyalty points, in-store vouchers airmiles, and more. MyWalletHero makes it easy for you to find a card that matches your spending habits so you can get the most value from your rewards.

Can an employer deny me a job due to bad credit?

Yes. According to credit reference agency Experian, if your prospective employer feels that your current financial situation could impact your ability to perform well in the role, or if your credit history shows poor financial planning, they may decide not to hire you.

Generally speaking, however, employers are more likely to be concerned about serious ‘red flags’ in your credit history, like bankruptcy rather than the odd missed payment.

In any case, employers only get access to your ‘public’ credit report. This contains your electoral roll information and any major red flags such as bankruptcies, individual voluntary arrangements and county court judgments.

They will not have access to your detailed credit repayments or your credit score.

How can I keep my credit history from affecting my ability to get a job?

If a prospective employer runs a credit check on you, ultimately you have no control over what they do with the information, including denying you a job due to bad credit.

The best thing you can do to minimise the impact of your credit on your chances of getting a job is to review your credit report beforehand.

You have the right to one free credit report per year from each of the three credit agencies (Experian, TransUnion and Equifax). Before you apply for a job or attend an interview, request your report and review it for any errors so that you can have them corrected ahead of time.

Even if there are no errors, knowing what is on your credit report puts you in a good position to answer any questions that may arise during the hiring process.

Indeed, if there’s something in your report that employers might consider a ‘red flag’, don’t panic. Instead, begin preparing an explanation to give to them. If it was, for example, caused by financial hardship beyond your control, the employer may take this into account.

Alternatively, you can contact a credit reference agency and request that a notice of correction be added to your report. This is a brief note of up to 200 words in length that explains circumstances that a lender might otherwise question.

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Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.




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Bad Credit

Refinancing Your Subprime Auto Loan

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Refinancing is a wonderful way to save money on your monthly car loan payment – but it can cost you more in the long run if you’re not careful. Refinancing when you have a subprime auto loan isn’t always as easy as refinancing a vehicle when you have good credit. Working with the right lender can help, though.

What Is Refinancing?

Refinancing is when you replace your existing car loan with a different one for the same vehicle, which may have either a lower interest rate, a longer loan term, or both.

Qualifying for a lower interest rate is optimal for getting a lower monthly payment and saving money overall. If you only extend your loan term without getting a lower rate, you actually end up paying more in interest charges over the term of your loan.

Auto loans typically use a simple interest formula, meaning your interest charges add up daily. The longer your loan term, the more you pay the lender – it’s wise to choose the shortest loan term you can afford. If you only extend your loan term you may end up paying more than the vehicle’s value!

Refinancing can typically be done with your current lender or with another one. It’s a good idea to shop around for the best possible rate before going with the first offer you receive. When you shop for the same type of financing with multiple lenders in a two-week timeframe, it’s called rate shopping. When you do this only one credit inquiry impacts your credit score instead of multiple, minimizing the negative impact that hard pulls can have on your credit score.

Options for Bad Credit Borrowers

Taking out a subprime auto loan is a great way to improve your credit, so, if you’ve kept up with your loan to this point and just need a little wiggle room in your budget, refinancing could be for you. Your credit is an important factor in refinancing your auto loan because refinancing is typically reserved for people with good credit.

However, when a borrower already took out a subprime car loan, many refinancing lenders are willing to work with them as long as they’ve made improvements to their credit over the course of the loan. Better credit alone doesn’t qualify you for refinancing, though.

In order to qualify for refinancing, you, your vehicle, and your loan all need to meet the requirements of a lender. These vary, but in order to refinance your car you typically need to meet these qualifications:Refinancing Your Subprime Auto Loan

  • Have a better credit score than when you began the loan
  • Have had your auto loan for at least one year
  • Have an acceptable loan amount
  • Have no more than 100,000 miles on your vehicle
  • Car can’t be more than 10 years old
  • You must be current on your payments
  • There can’t be negative equity in the vehicle

Lenders that refinance typically prefer cars that are in good condition, that aren’t too old, and have lower mileage. Some lenders may not want to refinance a vehicle that’s at risk for breaking down or is depreciating quickly.

They’re generally looking for a loan that isn’t too new, or too close to being paid off as well. And, refinancers may also require that you haven’t missed a payment on your original car loan. A borrower whose current on their loan gives a lender confidence you’ll manage the new loan well.

Alternatives to Refinancing Your Subprime Auto Loan

If you’re not able to refinance your vehicle, you typically still have the option to trade it in for something more affordable. Even if you’re still paying on a loan, all you have to do is pay off the loan to release the lien on the car.

Even if it’s years from the end of your loan term, you may have a good chance at trading in your vehicle, especially now. Due to fluctuations in the auto market, used cars are in high demand currently, which means that dealerships may be willing to pay a higher price to get your used vehicle on their lot – even if you’re a bad credit borrower looking to trade-in.

If you still owe on an auto loan this gives you a better chance at selling your car for the amount you owe to the lender. It may even give you enough cash left over to put toward your next, more affordable vehicle!

Ready to Get Started?

If you think refinancing your subprime auto loan is the way to go, you can check out our resources, here. But, if you think that finding an affordable, used car with a lower monthly payment is the right choice for you, we want to get you started toward your goal today!

At Auto Credit Express, we’ve got a coast-to-coast network of special finance dealerships ready to work with borrowers who are struggling with credit challenges. To get connected to a dealer in your local area that’s signed up with subprime lenders, simply fill out our auto loan request form. It’s fast, free, and never carries any obligation.

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It’s Time to Break Up With Your First Credit Card

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©Shutterstock.com / Shutterstock.com

©Shutterstock.com / Shutterstock.com

Many of us got our first credit cards when we were either in college or in our early 20s. We likely did not have a full-time job with a steady salary, and if we did, it’s also likely we weren’t rolling in dough.

See: 13 Credit Cards That Every 30-Something Should Consider
Find: Surprising Uses for Your Credit Card Rewards

Given these circumstances, the first credit cards offered to us were probably of a particular kind: low credit limits, no prior credit history required, high annual percentage rate and overall easy to get. While these cards served us well as a way to build up our credit — and probably learn some lessons about money the hard way — it’s time to let go for a couple of reasons.

The Benefits of Upgrading Your Card

When you upgrade your card, it’s likely you will also upgrade the benefits. Some companies, like Discover, Credit One and Capital One, are popular choices as a first credit card. However, these companies have better options as you, and your finances, mature.

The Wall Street Journal suggests asking for an upgrade. “Customers need to phrase it as a ‘product change’ when they call the card company. A product change involves getting a new card with the same card provider and it typically allows a cardholder to keep everything else the same, including the account number and available credit.”

See: 10 Credit Cards That Have Gotten Better During the Pandemic
Find: Old-School Money Advice You Shouldn’t Follow Anymore

This could be a good idea for those who are not ready to jump ship from their first credit company just yet. It also removes the hassle of having to find a different provider, and probably the largest benefit of all — no hard credit check needed.

A “hard” credit check is when your credit is thoroughly examined, and it results in an inquiry showing up on your credit report. These are always necessary for opening a new line of credit, like a credit card or a mortgage, but too many inquiries can count against you and negatively affect your credit. A “soft” credit check, on the other hand, will not affect your credit score and is usually done for verification purposes, such as when you apply for new employment. Soft checks also happen with preapprovals.

See: Soft vs. Hard Credit Check — What’s the Difference?
Find: 30 Things You Do That Can Mess Up Your Credit Score

If you ask for a product change on a credit card, you won’t need to have that hard inquiry because the company already has a solid picture of your credit and has done an inquiry before. But it’s important to confirm that your credit history will be rolled over to the new card.

Switching credit institutions all together can be beneficial, depending on what you’re trying to achieve. While the rules of credit apply whether you have, for example, a Credit One or Chase credit card, it’s not a secret that certain credit cards have certain reputations — or that credit bureaus take notice.

For example, the Credit One Bank Visa card is “one of the most popular credit cards for people with bad credit, largely because it’s one of the few unsecured cards that applicants with poor credit scores can get approved for,” according to WalletHub.

See: Biden Wants to Shut Down Credit Bureaus – What Would That Mean for You?
Find: 10 Credit Score Myths You Need to Stop Believing

In contrast, American Express credit cards are best for people with credit scores over 700 and require at least “good” credit for approval, WalletHub adds. A good credit score is one that’s between 670 and 739, according to Fair Isaac.

So while both cards function the same way, the profile of those who own these cards might be different — or at least be perceived as such.

Theoretically, the same person could own both cards, but your money works for you more with an American Express vs. a Credit One. If you have a Credit One card but qualify for American Express, it might make sense to leave your old credit card behind. In addition to the immediate financial benefits, upgrading for a credit card company that has a reputation for being exclusive to those with good credit could help when you apply for a mortgage or apply for credit cards at specific stores.

See: This Is How Many Credit Cards You Should Have
Find: Credit Cards With the Best Incentives to Open in 2021

The first question you should ask yourself is, “What is my card doing best for me?” If the answer is helping you build your credit, getting you out of bad credit or allowing you to have credit when you otherwise would not be able to, then sticking with the same card, or at least the same credit card company, makes sense.

This allows you avoid a new credit inquiry on your credit report while still building and increasing your credit. Asking for a credit limit increase on your credit card if you’ve been with the same company for a while, you’ve been routinely paying off your card and you’re in good standing, is a good idea.

See: Expert Tips to Fix Your Credit on a Limited Income
Find: What Is a Credit Limit?

If you are shopping around for a new card that gives you rewards or benefits based on your purchases, starting small is paramount. It wouldn’t be prudent to go straight for a card that has a yearly fee, for example.

Start small, and start smart with credit limits, too. Going from a limit of $2,000 straight to a limit of $15,000 while your salary remains relatively unchanged is not always a good thing. Having a higher credit limit doesn’t necessarily mean that you are now richer or more responsible — it only means that you now have a greater risk of putting yourself into serious debt. Slowly increasing your credit limit makes your debt more manageable — and makes you look more responsible to credit bureaus.

Breaking up is hard to do, but if your finances have matured, it might be time to get a card that helps you reach your goals with cash-back rewards and points you can use for travel, groceries and other other items. Shopping around for a lower interest rate and a slightly increased credit limit can also help you move forward.

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This article originally appeared on GOBankingRates.com: It’s Time to Break Up With Your First Credit Card

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