Low Credit - High Hopes!
Just as a less-than-stellar SAT score doesn’t preclude you from ever achieving a college education, a lower credit score doesn’t have to mean you can’t qualify to refinance your current mortgage. In fact, using the equity in your home can actually improve your credit standing by consolidating debt, reducing your monthly payment, or paying down other high interest obligations.
There are ways to make your money work for you when FICO is not your friend. FICO stands for Fair Isaac Corporation and while there are other bureaus who help lenders decide if your credit is worthy, FICO is the common term used to cover the different sources used.
Credit scores typically fall between 300 and 850, with numbers above 800 considered excellent and those below 579, poor. Statistically, about 34% of Americans are below 670 which is considered an average score. The good news is, low scores can be mended and often quickly, so there are steps to take right away to improve your score for refinancing:
Pay on time. Payment history makes up 35% of your FICO score so avoiding late payments can change the numbers quickly.
Check for errors. Doing everything right but still showing a low score? Studies have shown up to 25% of consumers had some error on their report negatively impacting scores. Review your credit report periodically to resolve any problems.
Keep credit utilization low. Experts recommend that the amount of money you owe on credit should be less than 30% of what you have available. In other words, if your credit limit is $10,000 you should keep your balance owed below $3,000. A balance lower than 10% can further increase your score.
No new credit. Avoid applying for any new credit in the period before pursuing a home loan. The exception is if you have no credit at all and you need to establish some. Also, don’t close out any cards completely as that can lower your score.
Once you’ve taken steps to improve your credit score you can bring your debt consolidation full circle by taking advantage of the equity in your home. With record low interest rates, refinancing can lighten the burden of your current mortgage by substantially reducing your monthly payment with a lower fixed rate. Refinancing to take cash out of your equity is also a great way to pay down high interest credit card debt, thus further improving your FICO score.
So, if you looked at your credit score and resigned yourself to being buried by debt, we hope this has restored some hope. A low FICO is not a dead end and we at EnTrust Funding (ETF) can point you in the right direction.
We offer an array of specialty products that are tailored to those with low credit scores, as well as second chance programs designed for borrowers who have had a prior credit event such as bankruptcy.
Your home is an asset – let #entrustfunding help you make sure it’s working for you, not against you.