Improve credit score before refinance
Dear Dr. Don,
What type of mortgage refinancing is available for people like me? I own a home which has a first and second mortgage against it. I can't qualify to refinance because my credit score is 500. I earn a very good salary, but I had some setbacks with student loans after finishing graduate school last May.
What can I do? I was counting on refinancing, and now that is not available. My mortgage is a 30-year, fixed-rate jumbo loan at 6.25 percent.
-- Myrna Mortgage
If you have to count on being able to refinance a 6.25 percent jumbo mortgage to balance your monthly budget, you have other worries. Chief among them is owning a home you can't afford.
As you've found out, a credit score of 500 isn't going to have lenders clamoring for your business. A credit score this low is about where I'd expect to see someone who had recently filed for bankruptcy.
You should review your credit reports and make sure the information is accurate. Dispute any inaccurate information. The Bankrate feature "5 steps for improving your credit rating" will help you manage that task.
Getting current and staying current on your credit accounts is the best way to improve your credit score over time. Negative information stays on your credit report for seven years, but you won't have to wait seven years to see an improvement in your credit score.
The myFICO publication "Understanding Your FICO Score" is required reading.