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12 Credit Repair Tips for Homeowners Looking to Refinance

Refinancing a home is something that millions of homeowners consider doing every year, and for good reason. Repairing your credit is essential to maximize pricing to get the best deal when refinancing a mortgage. It's no secret that a refinance mortgage with bad credit typically carries a higher interest rate, so it makes sense to do a little work up-front so that you can secure a mortgage with the best interest rate. Repairing your credit prior to refinancing offers you a chance to get lower interest rates, reduce monthly payments, and even end up with cash on hand to use as you see fit. In short, refinancing makes sense.

But what about those with less than perfect credit? Refinancing still takes your credit score into account, and as such it' important to take some time and put forth the effort needed to correct your credit score whenever possible. Here are some of the top tips worth remembering if you are trying to refinance your home but need to do some credit repair before you begin.

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  1. Get A Copy of Your Credit Report – Everything starts with your credit report, and with knowing what is on it. Once you have your report you can identify the next steps you need to take, and you are entitled to a free copy of your report once per year. Once you have it, compare it to the steps below to start fixing your credit.
  2. Fix Credit Report Errors – Review your report and ensure that there are no mistakes present on it. If you see inaccurate entries, you can submit a dispute to the credit agency who will then consult the lender to verify the item. If it's an error, it will be removed.
  3. Don't Fight Over All Credit Entries – While you should certainly contest erroneous entries on your credit report, it's important not to try to argue over past debts that are paid now but still on the credit report. Those paid debts aren't usually negatively impacting your score, and arguing over them could be hurting you.
  4. Catch Up on Missed Payments – If you've missed payments in the past, now is the time to get everything current. Pay all your existing debts off and ensure that everything is paid off as it should be. All missed or late payments need to be corrected.
  5. Pay Everything on Time in the Future – From your medical bills to your mortgage payment, be sure to pay everything on time throughout the future. This ensures that you build a positive history and that you're able to stand out as being trustworthy in the eyes of lenders.
  6. Use Calendars and Reminders – You should set up automatic reminders for yourself if you're trying to stay on time with payments but are having a hard time with it. To make it even easier, you can set up automatic payments – just be sure that you keep the funds in your account for this.
  7. Open a Line of Credit to Establish Good Credit – If you're struggling to secure a loan due to a lack of credit, you can open up a line of credit to start building some for yourself. Those with poor credit may need to use a secured card at first, but the key is to start a credit account and pay it on time. Consider a HELOC loan if you do not already have one set up.
  8. Pay Off Most Credit Debt – If you already have a number of credit cards, it's important to take time to pay off as many of them as you can. Doing so will help you reduce the debt ratio you're carrying and ensure a more favorable credit score – the percentage of debt you hold can have a big impact on your credit.
  9. Don't Close Long-Time Accounts – If you have long-term accounts with credit card companies, it's not in your best interests to cancel or close those accounts. Simply maintain the line of credit and avoid using it instead. If you have an annual fee, you can always talk to the company to see if you can switch to a fee-free card.
  10. Avoid Frequent Applications for Credit – Constantly applying for credit can be a negative indicator as well. When lenders see you constantly trying to secure loans, they feel that you're trying to take advantage of the system. And it's even worse when you're regularly being denied a credit account. Instead, apply smart and only when you really need to.
  11. Reduce Overall Debt – Reducing your overall debt is important as well. Lenders look at the debt you currently owe versus your income when making a decision on a refinance. The less you owe, the better your odds of getting the loan that you're hoping for.
  12. Build Equity – Finally, build equity. Do regular renovations, repairs, and upgrades to your home to help build its overall value while paying down what you owe on it. This can help immensely since equity is often the main thing lenders consider in a refinance.

Keep these basic points in mind and you should be able to start repairing your credit in a way that offers you the chance to refinance your home and get a better loan. -Article was written by James Swift


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