5 Ways to Perfect Your Credit Score

If you’re trying to perfect your credit score, it’s important to first understand what makes up your credit report and credit score. Your credit score is determined by an advanced algorithm which was developed by FICO and pulls the data from your credit report to determine your score. When calculating your credit score, the following information is going to affect your credit score in the corresponding percentages:

  • 35 percent: History of on-time or late payments of credit.
  • 30 percent: Available credit on your open credit cards
  • 15 percent: The age of your lines of credit (old = good)
  • 10 percent: How often you apply for new credit.
  • 10 percent: Variable factors, such as the types of open credit lines you have

Many of this may be common sense or information that you’ve already learned over time, resulting in a good credit score but possibly not a perfect score. If you have a bad credit score, it could take a lot of time and work to perfect your score and you may first want to consider repairing your credit. If your credit score is already above 700 but you’re trying to shoot for that perfect score of 850 to ensure the best deals and interest rates, here are 5 ways to perfect your credit score:

1. Maintaining Debt-To-Limit Ratio

To perfect your credit score, it’s recommended that you keep your debt-to-credit ratio below 30% and, if possible, as low as 10%. The debt-to-limit ratio is the difference between how much you owe on a credit card versus how much your credit limit is. For example, if one of your credit cards has a credit limit of $5,000, then you should always keep the balance below $1,500 but preferably around $500. As you can see above, 30% of your credit score is determined by the available credit on your open credit cards, so keeping the debt-to-limit ratio will increase your available credit and also show that you’re responsible with your credit.

2. Keep Your Credit Cards Active

Make sure that you use your cards at least once a year to keep them shown as “active” credit and make sure that you never cancel your credit cards. 15% of your credit score is determined by the age of your lines of credit, so you should always keep your credit cards active to lengthen the age of your line of credit. Many people tend to cancel cards that they no longer use – many times because the rates aren’t very good or because they have another card with better benefits – but even if you don’t use the cards very often (just once a year is fine), you should keep them active. Typically, someone with a credit score over 800 has credit lines with at least 10 years of positive activity.

3. Always Pay Bills On Time

Probably the most well-known factor of a credit score and the factor that has the biggest impact on your credit score (35% of your score) is your history of paying your credit payments on-time. If you have a history of always making your credit card, mortgage, and car payments on time, you will greatly improve your credit score. This can also have an adverse effect as well, should you ever make a late payment. Unfortunately, it only takes one late payment to severely reduce your credit score so it’s crucial that you make sure to always make credit payments on time.

4. Dispute Errors On Your Credit Report

If you don’t already, make sure that you request a copy of your credit report once every year and review it for errors. It is actually quite common for credit reports to contain errors which can be disputed and potentially allow you to have negative items removed from your credit report. If, for instance, your credit report shows a late payment on a credit card but contained errors in the record, you can dispute the negative item and request to have it removed from your report. Having a negative item, like a late payment, removed from your report can improve your credit score significantly. While disputing errors on your credit report can be tedious and take a lot of time, it is usually worth it. Another option would be to contact a credit repair agency to help you dispute any negative items on your credit report.

5. Reduce The Number of Credit Inquiries

While this may only affect 10% of your credit score, keeping the number of credit inquiries down can still help to build that perfect credit score but is often ignored. You should never have more than one credit inquiry per year but many people do not realize how often this is done and often times have their credit checked more than once per year. If you’re applying for a car loan, checking your credit score online, or applying for a new credit card, these type of actions will almost always result in a credit inquiry and should be avoided if you’ve already had a credit inquiry earlier in the year. Make sure you do your research on what will result in a credit inquiry so that you don’t accidentally have more than one a year without realizing it.

Source: creditabsolute.com

15 types of credit cards

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Whether you’re a seasoned cardholder or a first-timer, you may be surprised at how many types of credit cards are available. Depending on your credit score and the length of your credit history, you may not be able to qualify for the ones with the most favorable terms and lowest interest rates. But chances are, there’s a card that fits your needs and—if used responsibly—may help you build credit.

Broadly speaking, there are four different types of credit card categories:

  1. Cards That Help Build Credit
  2. Cards That Can Save You Money
  3. Cards That Offer Cash Back and Rewards
  4. Cards for People With Bad Credit

Here, we’ll break down each category, discuss the specific card types and explain each one’s unique benefits so that you can make the most of your card.

Cards That Help Build Credit

If you’re new to the world of credit, you may be wondering how to build credit quickly, without going into debt. If you’re in college, you may have the added load of student debt. When you’re just starting out, it’s important to find a card that’s right for you and manage it carefully to start your credit health out on the right foot. You may even be able to earn some rewards along the way.

Cardholders ages 18 – 22 have an average credit score of 672.

1. Student Credit Cards

Student credit cards operate exactly the same way that standard credit cards do. The main difference is that their total credit limits tend to be lower. Additionally, since they are marketed toward students who likely don’t have much of a credit history, the requirements for approval are typically more lenient. 

Benefit: Some student cards offer incentives for good grades, like a small cash reward for each school year that you earn a GPA of 3.0 or higher.

Example: Discover it® Student Cash Back

2. Starter Credit Cards

Starter credit cards are designed for those with little to no credit history. Consider getting one if you’ve never had a line of credit, or if you have one that hasn’t been open very long. These cards typically don’t offer great rewards programs or cash-back incentives, and they come with high interest rates. However, if you can find one with no annual fee, it can be a great option to begin building credit.

Benefit: Establish your credit and build a solid payment history with this type of credit card, which is generally easy to qualify for.

Example: Capital One Platinum® Credit Card

3. Joint Credit Cards

Unlike authorized user credit cards, joint credit cards require both parties to apply together. Both parties are equally responsible for paying the balance. Therefore, late or missed payments may ding both credit scores—while consistent, on-time payments will benefit both scores. 

Benefit: If a person doesn’t have a high enough credit score to qualify for a good credit card, they may consider applying with their partner for a joint credit card with more favorable terms.

Example: Bank of America® Cash Rewards Credit Card

Cards That Can Save You Money

Sometimes applying for a credit card is a strategic move. Maybe you want to transfer your balance to a card with a lower interest rate, avoid paying interest for an introductory period or customize features for your business. These cards can help you save money—your way.

Approximately 74% of credit cards have no annual fee.

4. Zero Percent Purchase APR Credit Cards

Sometimes cards will offer temporarily lower APRs for an introductory period. Cards that boast zero percent APR don’t require you to pay interest on new purchases for a set amount of time, usually about 12 months. 

Benefit: Save money on interest by borrowing money essentially for free. Just make sure to pay off your balance by the time your introductory period is over to avoid interest charges.

Example: U.S. Bank Visa® Platinum Card

5. No Annual Fee Credit Cards

Many credit cards charge annual fees for the convenience of having the card and for the benefits and rewards they offer. Depending on how elite the card is, these fees can be up to $450 or more. However, almost three-fourths of cards offer no annual fee—and many of these still come with decent cash back programs. Scan your credit card offer or the terms and conditions to make sure your card has no annual fee. 

Benefit: Save an average of $58 each year by avoiding unnecessary annual credit card fees.

Example: Citi® Double Cash Card

6. Balance Transfer Credit Cards

Similar to zero percent purchase APR credit cards, balance transfer cards offer temporarily low introductory rates—but specifically for balance transfers. This is a great option for those who want to save money on a high-interest credit card. Rather than closing the unfavorable card—which may lower your credit score—a balance transfer may be a better option.

Benefit: Avoid paying hefty amounts of interest by transferring your balance to a card with a much lower introductory rate. 

Example: Wells Fargo Platinum Card

7. Business Credit Cards

If you’re a business owner, you may want to apply for a credit card specifically for business use. This will help you separate personal and business expenses, and the rewards may help your business save money. You’ll then begin to build business credit. To apply you’ll need decent credit and either a federal tax ID or employer identification number (EIN).

Benefit: Enjoy business-specific perks like higher credit limits, expense management reports and the ability to add more cards for employees. 

Example: Costco Anywhere Visa® Business Card by Citi

Cards That Offer Cash Back and Rewards

In order to get the most out of their spending, most cardholders gravitate toward credit options that offer cash back and rewards. 

Cardholders carry an average of 4.1 cards, 2.4 of which are rewards-based.

8. Cash Back Credit Cards

Cash back credit cards allow you to earn a certain percent—typically ranging from one to five—of the money back every time you make a purchase with the card. Some issuers will pay this amount annually, while others pay monthly.

Benefit: Find a card that allows you to customize where you get your cash back. For example, certain cards allow you to earn five percent cash back in a store category of your choice.

Example: Chase Freedom Unlimited®

9. Retail Credit Cards

Retail or store credit cards are offered by specific businesses and can only be used to make purchases with that store. While these cards aren’t ideal for everyday purchasing needs, they’re a great way to earn generous rewards with stores that you frequently shop at. There are over 300 store credit cards available, from Walmart and Target to Lowe’s and JCPenney. 

Benefit: Store cards typically don’t charge annual fees, don’t require excellent credit and offer substantial first-purchase discounts as well as long-term cash back rewards.

Example: Amazon Prime Store Card

10. Hotel Credit Cards

Hotel credit cards are affiliated with a specific hotel chain and offer rewards on a “points” basis. Typically, they’ll offer some points for purchases made at unrelated businesses such as grocery stores, gas stations and restaurants. But the main attraction is the bonus points earned on eligible purchases made directly with the hotel. 

Benefit: Earn generous sign-up bonuses, rewards when you spend money on hotel bookings and yearly free nights. 

Example: Hilton Honors American Express Surpass® Card

11. Airline Credit Cards

Certain credit cards offer rewards on purchases made with a specific airline, while others allow you to earn rewards with any airline or travel-related expense. These rewards rack up in the form of “miles.” For example, many cards offer two miles for every one dollar spent on flights. 

Benefit: For frequent travelers, airline credit cards are a great way to score free and discounted flights.

Example: Delta SkyMiles® Gold American Express Card

12. Gas Rewards Credit Cards

Not to be confused with gas station credit cards—which operate like retail cards—a gas station rewards card offers cash back when you pay at the pump. It can be used anywhere, but you’ll enjoy bonus rewards at gas stations.

Benefit: Earn up to three to five percent cash back on gas purchases, often with no annual fee and a zero percent introductory APR. 

Example: PenFed Platinum Rewards Visa Signature® Card

13. Charge Cards

Charge cards operate in exactly the same manner as regular credit cards, except for one major caveat: you must completely pay off the total balance each month. Failure to do so results in late fees and penalties and will cause a drop in your credit score. On the flip side, they typically come with sizable initial bonuses and rewards.

Benefit: Enjoy higher credit limits and generous point systems—oftentimes offering up to five points per one dollar spent.

Example: ThePlatinum Card® from American Express

Cards for People With Bad Credit

If you’re struggling to get approved for credit cards, loans or other lines of credit because of bad credit, don’t be discouraged. There are credit cards with terms designed specifically for those with poor credit. 

Approximately 12% of Americans have a FICO score below 550.

14. Secured Credit Cards

Most credit cards are unsecured. This means that you are not required to put up a security deposit. Secured cards, on the other hand, require an up-front payment to act as collateral in the event that you can’t pay your balance. Credit card issuers see borrowers with bad credit scores as riskier, so this deposit helps mitigate some of that risk. 

Benefit: Secured cards give borrowers with poor credit access to credit when they otherwise wouldn’t be able to qualify for a card.

Example: Capital One® Secured Mastercard®

15. Prepaid Cards

Prepaid cards aren’t technically credit cards, because they don’t involve borrowing money. Instead, a cardholder loads a set amount of money onto the card, and purchases are subtracted from the card’s balance, similar to a gift card. The spending limit then renews if and when the card is reloaded. 

Benefit: Prepaid cards help you stay within a budget and avoid getting into credit card debt.

Example: American Express Serve® FREE Reloads

What Type of Credit Card Is Best?

Ultimately, the decision for which card to get is up to your personal preferences and financial goals. However, there are a few good rules of thumb when looking for the best credit cards. Remember to read the terms and conditions carefully before signing up. Generally, cards with any of the following perks may be worth pursuing:

  • Zero percent introductory APR
  • Low APR after the introductory period
  • Sign-up bonus
  • Solid rewards or cash-back program
  • No annual fee

All of the different types of credit cards may seem daunting at first, but once you understand the unique benefits of each one, you’ll be able to find a card that fits your needs. Remember that—regardless of credit card type—good credit management is the key to keeping your credit healthy. After years of on-time payments, low credit utilization, a good mix of credit and few hard inquiries, you’ll be well on your way to your best score yet.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

15 types of credit cards – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Whether you’re a seasoned cardholder or a first-timer, you may be surprised at how many types of credit cards are available. Depending on your credit score and the length of your credit history, you may not be able to qualify for the ones with the most favorable terms and lowest interest rates. But chances are, there’s a card that fits your needs and—if used responsibly—may help you build credit.

Broadly speaking, there are four different types of credit card categories:

  1. Cards That Help Build Credit
  2. Cards That Can Save You Money
  3. Cards That Offer Cash Back and Rewards
  4. Cards for People With Bad Credit

Here, we’ll break down each category, discuss the specific card types and explain each one’s unique benefits so that you can make the most of your card.

Cards That Help Build Credit

If you’re new to the world of credit, you may be wondering how to build credit quickly, without going into debt. If you’re in college, you may have the added load of student debt. When you’re just starting out, it’s important to find a card that’s right for you and manage it carefully to start your credit health out on the right foot. You may even be able to earn some rewards along the way.

Cardholders ages 18 – 22 have an average credit score of 672.

1. Student Credit Cards

Student credit cards operate exactly the same way that standard credit cards do. The main difference is that their total credit limits tend to be lower. Additionally, since they are marketed toward students who likely don’t have much of a credit history, the requirements for approval are typically more lenient. 

Benefit: Some student cards offer incentives for good grades, like a small cash reward for each school year that you earn a GPA of 3.0 or higher.

Example: Discover it® Student Cash Back

2. Starter Credit Cards

Starter credit cards are designed for those with little to no credit history. Consider getting one if you’ve never had a line of credit, or if you have one that hasn’t been open very long. These cards typically don’t offer great rewards programs or cash-back incentives, and they come with high interest rates. However, if you can find one with no annual fee, it can be a great option to begin building credit.

Benefit: Establish your credit and build a solid payment history with this type of credit card, which is generally easy to qualify for.

Example: Capital One Platinum® Credit Card

3. Joint Credit Cards

Unlike authorized user credit cards, joint credit cards require both parties to apply together. Both parties are equally responsible for paying the balance. Therefore, late or missed payments may ding both credit scores—while consistent, on-time payments will benefit both scores. 

Benefit: If a person doesn’t have a high enough credit score to qualify for a good credit card, they may consider applying with their partner for a joint credit card with more favorable terms.

Example: Bank of America® Cash Rewards Credit Card

Cards That Can Save You Money

Sometimes applying for a credit card is a strategic move. Maybe you want to transfer your balance to a card with a lower interest rate, avoid paying interest for an introductory period or customize features for your business. These cards can help you save money—your way.

Approximately 74% of credit cards have no annual fee.

4. Zero Percent Purchase APR Credit Cards

Sometimes cards will offer temporarily lower APRs for an introductory period. Cards that boast zero percent APR don’t require you to pay interest on new purchases for a set amount of time, usually about 12 months. 

Benefit: Save money on interest by borrowing money essentially for free. Just make sure to pay off your balance by the time your introductory period is over to avoid interest charges.

Example: U.S. Bank Visa® Platinum Card

5. No Annual Fee Credit Cards

Many credit cards charge annual fees for the convenience of having the card and for the benefits and rewards they offer. Depending on how elite the card is, these fees can be up to $450 or more. However, almost three-fourths of cards offer no annual fee—and many of these still come with decent cash back programs. Scan your credit card offer or the terms and conditions to make sure your card has no annual fee. 

Benefit: Save an average of $58 each year by avoiding unnecessary annual credit card fees.

Example: Citi® Double Cash Card

6. Balance Transfer Credit Cards

Similar to zero percent purchase APR credit cards, balance transfer cards offer temporarily low introductory rates—but specifically for balance transfers. This is a great option for those who want to save money on a high-interest credit card. Rather than closing the unfavorable card—which may lower your credit score—a balance transfer may be a better option.

Benefit: Avoid paying hefty amounts of interest by transferring your balance to a card with a much lower introductory rate. 

Example: Wells Fargo Platinum Card

7. Business Credit Cards

If you’re a business owner, you may want to apply for a credit card specifically for business use. This will help you separate personal and business expenses, and the rewards may help your business save money. You’ll then begin to build business credit. To apply you’ll need decent credit and either a federal tax ID or employer identification number (EIN).

Benefit: Enjoy business-specific perks like higher credit limits, expense management reports and the ability to add more cards for employees. 

Example: Costco Anywhere Visa® Business Card by Citi

Cards That Offer Cash Back and Rewards

In order to get the most out of their spending, most cardholders gravitate toward credit options that offer cash back and rewards. 

Cardholders carry an average of 4.1 cards, 2.4 of which are rewards-based.

8. Cash Back Credit Cards

Cash back credit cards allow you to earn a certain percent—typically ranging from one to five—of the money back every time you make a purchase with the card. Some issuers will pay this amount annually, while others pay monthly.

Benefit: Find a card that allows you to customize where you get your cash back. For example, certain cards allow you to earn five percent cash back in a store category of your choice.

Example: Chase Freedom Unlimited®

9. Retail Credit Cards

Retail or store credit cards are offered by specific businesses and can only be used to make purchases with that store. While these cards aren’t ideal for everyday purchasing needs, they’re a great way to earn generous rewards with stores that you frequently shop at. There are over 300 store credit cards available, from Walmart and Target to Lowe’s and JCPenney. 

Benefit: Store cards typically don’t charge annual fees, don’t require excellent credit and offer substantial first-purchase discounts as well as long-term cash back rewards.

Example: Amazon Prime Store Card

10. Hotel Credit Cards

Hotel credit cards are affiliated with a specific hotel chain and offer rewards on a “points” basis. Typically, they’ll offer some points for purchases made at unrelated businesses such as grocery stores, gas stations and restaurants. But the main attraction is the bonus points earned on eligible purchases made directly with the hotel. 

Benefit: Earn generous sign-up bonuses, rewards when you spend money on hotel bookings and yearly free nights. 

Example: Hilton Honors American Express Surpass® Card

11. Airline Credit Cards

Certain credit cards offer rewards on purchases made with a specific airline, while others allow you to earn rewards with any airline or travel-related expense. These rewards rack up in the form of “miles.” For example, many cards offer two miles for every one dollar spent on flights. 

Benefit: For frequent travelers, airline credit cards are a great way to score free and discounted flights.

Example: Delta SkyMiles® Gold American Express Card

12. Gas Rewards Credit Cards

Not to be confused with gas station credit cards—which operate like retail cards—a gas station rewards card offers cash back when you pay at the pump. It can be used anywhere, but you’ll enjoy bonus rewards at gas stations.

Benefit: Earn up to three to five percent cash back on gas purchases, often with no annual fee and a zero percent introductory APR. 

Example: PenFed Platinum Rewards Visa Signature® Card

13. Charge Cards

Charge cards operate in exactly the same manner as regular credit cards, except for one major caveat: you must completely pay off the total balance each month. Failure to do so results in late fees and penalties and will cause a drop in your credit score. On the flip side, they typically come with sizable initial bonuses and rewards.

Benefit: Enjoy higher credit limits and generous point systems—oftentimes offering up to five points per one dollar spent.

Example: ThePlatinum Card® from American Express

Cards for People With Bad Credit

If you’re struggling to get approved for credit cards, loans or other lines of credit because of bad credit, don’t be discouraged. There are credit cards with terms designed specifically for those with poor credit. 

Approximately 12% of Americans have a FICO score below 550.

14. Secured Credit Cards

Most credit cards are unsecured. This means that you are not required to put up a security deposit. Secured cards, on the other hand, require an up-front payment to act as collateral in the event that you can’t pay your balance. Credit card issuers see borrowers with bad credit scores as riskier, so this deposit helps mitigate some of that risk. 

Benefit: Secured cards give borrowers with poor credit access to credit when they otherwise wouldn’t be able to qualify for a card.

Example: Capital One® Secured Mastercard®

15. Prepaid Cards

Prepaid cards aren’t technically credit cards, because they don’t involve borrowing money. Instead, a cardholder loads a set amount of money onto the card, and purchases are subtracted from the card’s balance, similar to a gift card. The spending limit then renews if and when the card is reloaded. 

Benefit: Prepaid cards help you stay within a budget and avoid getting into credit card debt.

Example: American Express Serve® FREE Reloads

What Type of Credit Card Is Best?

Ultimately, the decision for which card to get is up to your personal preferences and financial goals. However, there are a few good rules of thumb when looking for the best credit cards. Remember to read the terms and conditions carefully before signing up. Generally, cards with any of the following perks may be worth pursuing:

  • Zero percent introductory APR
  • Low APR after the introductory period
  • Sign-up bonus
  • Solid rewards or cash-back program
  • No annual fee

All of the different types of credit cards may seem daunting at first, but once you understand the unique benefits of each one, you’ll be able to find a card that fits your needs. Remember that—regardless of credit card type—good credit management is the key to keeping your credit healthy. After years of on-time payments, low credit utilization, a good mix of credit and few hard inquiries, you’ll be well on your way to your best score yet.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

How to refinance a mortgage with bad credit

Refinancing your mortgage with a bad credit score is completely possible, but is a more complicated process than refinancing with a good score. Because your credit score is such a large aspect of any loan application and refinancing process, it is in your best interest to consider all of your options before moving forward.

Refinancing your mortgage could be a great opportunity to gain some payment flexibility or even take advantage of a lower interest rate. To avoid leaving money on the table, explore all of your options for refinancing with bad credit.

How Credit Scores Affect Refinancing

Lenders use your credit score and overall lending history to calculate the risk of lending you money. A lender will view a borrower with a low credit score caused by loan defaults and constant late payments as a high risk. Because the borrower has shown negative borrowing practices in the past the lender will be more reluctant to sign or refinance a loan.

30-Year Mortgage Rates Based on Credit Scores

FICO Score APR
760–850 4.6%
700–759 4.8%
680–699 5.0%
660–679 5.2%
640–659 5.6%
620–639 6.1%

Based on 2018 national averages for a $200,000 fixed loan.
Source: FICO

Putting together a mortgage refinancing package for a borrower with a bad financial history might cause the lender to increase the length of the loan term, increase the total interest rate or even increase the total monthly payments. Unfortunately, when a borrower has a pattern of falling behind on payments, a lender will offer more expensive refinancing packages to make up for the added risk.

Is Refinancing Right for You?

It is important to note that refinancing your mortgage may not always save you money. You might come out with the same financial deal or a worse option than you currently have, especially if you have a low credit score. In fact, looking at the average outcomes of Freddie Mac mortgages that were refinanced between 1994 and 2018 shows that only a small fraction of refinances actually resulted in the borrower saving money.

Graphic: Average Mortgage Refinancing Outcome

Source: Freddie Mac

While refinancing may not be right for everyone, it’s still important to consider the benefits of flexibility and length of terms. If you see yourself falling behind on payments or want to pay off your loan faster, refinancing your mortgage might still offer you some benefits.

Refinancing With Your Current Lender

When approaching your current lender about refinancing your mortgage it is first important to assess where you stand as a borrower. If you make payments on time and are in great financial health the lender will most likely want to continue doing business with you. However, if you have been late on payments and are struggling to cover other financial responsibilities the lender might be more reluctant to refinance your mortgage.

1. Shop Around for Low Rates

Before approaching your current lender for refinancing options, it is important to check for other options. To aid with any negotiations you should first check with other banks to see what interests rates are the best. Coming to your current lender after already shopping around for prices will give you more bargaining power to get a lower rate.

2. Show Proof of Savings

If your credit score is low but you have money in the bank a lender may still offer you a competitive rate. Showing proof of income and savings is a good option for new borrowers with short lending historys. For lenders, any proof that a borrower will be able to make payments toward a mortgage or loan will lower the overall lending risk and make a positive impact on the terms of the refinancing agreement.

3. Get a Loan Cosigner

If you have a low credit score and do not have sufficient money in the bank to lower your overall risk, you can use a loan cosigner. A cosigner shows the validity of an agreement and essentially promises to pay any debts that are outstanding if the borrower cannot pay. Depending on your financial situation, it can be difficult to get someone to agree to be your loan cosigner. As such, you should only approach people you’re close with.

4. Show Proof of Income

Even if you do not have a large amount of savings in the bank you can still demonstrate you will make payments on time and carry through with your mortgage agreement by showing proof of income. If you have a well-paying job or have sufficient income coming in, a lender will be more likely to offer a good refinancing option to you. Even without money in the bank or a good credit score, showing proof of income demonstrates that you are financially stable enough to make payments on the loan.

5. Improve Your Credit Score

Before visiting your lender to inquire about mortgage refinancing options you should first look at your credit report for points of action around how you can build your credit score. If your credit report is full of negative items like late payments, hard inquiries and delinquent accounts there could be some places to make up some extra points. Through a series of disputes, letters and phone calls with the major credit agencies you can work toward getting a higher score. There are also companies that offer credit repair solutions that can get your credit removal cases rolling to help improve your score.

Consider Cash-Out Refinancing

Cash-out refinancing is a mortgage refinancing option ideal for people who owe less than their house is worth. It is important to note that a cash-out refinancing option trades your current loan for a cash payment and a larger loan. Lenders can typically refinance a loan for up to 80 percent of the current market value.

Equity is earned on a home when its market value price increases over the price in which you paid for it. Earned equity is normally cashed out with the sale of a home, but it can also be tapped into with cash-out refinancing.

Graphic: 80% have tappable equity on their home

The largest disadvantage to a cash-out refinance is the equity loss of your investment. Although the amount of money between what you currently owe and what your house is valued can be a sizable help for short-term debts, you will still be accountable to pay back the new and larger loan in the long term.

Apply for the Home Affordable Refinance Program

The Home Affordable Refinance Program (HARP) is an initiative created by the Federal Housing Finance Agency following the 2008 economic recession, which caused large mortgage defaults in America. With the sudden drop in housing prices, many Americans were overpaying for their mortgages. HARP has helped refinance over 3 million mortgages so far and represents over 20 percent of all refinances. It is important to note that HARP is not the best solution for everyone, and has five main requirements for eligibility.

  • Your loan is currently owned by the mortgage-backed securities companies Freddie Mac or Fannie Mae.
  • Your mortgage/loan was signed before May 31, 2009.
  • Your current loan-to-value ratio is over 80 percent.
  • You are up to date with your mortgage payments and have not missed a payment in the last six months nor missed more than one payment in the past year.
  • The mortgage was either for your current residence, a second home or a four-unit investment property.

Seek FHA Refinancing

The Federal Housing Administration has a number of refinancing options built to help homeowners with existing FHA secured loans. Unfortunately, the streamlined refinancing is not available for loans that originated outside of any Federal Housing Administration secured lenders. One benefit of refinancing through the FHA is credit or income checks are not part of the process. If your mortgage is secured with the FHA, there are some prerequisites for the refinancing program.

  • You are current on payments and have not missed or been late on a payment for the past year.
  • You have owned the house for over six months.
  • You use an FHA approved lender or an FHA approved bank when refinancing.

If you are still unsure if you qualify the FHA mortgage portal includes a step-by-step guide that can give you an estimate of your best refinancing options available.

Mortgage Refinancing During the Coronavirus Outbreak

Graphic: Coronavirus Impact on Refinancing Your Mortgage

The coronavirus outbreak has impacted our lives on every front. Loss of jobs and income has lead to uncertainty and has made it difficult for many Americans to make their mortgage payments. Many homeowners have been taking advantage of the mortgage relief that was part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), legislation that was signed in on March 27, 2020. This allows eligible homeowners with FHA-insured mortgages to have their payments due dates pushed back, also known as forbearance.  

Other homeowners are taking this opportunity to refinance their mortgage. According to the Mortgage Bankers Association, refinancing applications are being filed at a rate that’s 168% higher than during the same period in 2019. Though re-financing sounds like an attractive plan-of-action, it may not be right for everyone — there are additional considerations to make if your credit score is less than ideal.

To better understand your options, see some refinancing factors, considerations, challenges and resources below.

Is Refinancing Worth It?

It is worth looking into refinancing but this may not be the right move for you depending on a variety of factors. In a broader sense, this is a great opportunity to save money if the determining factors are on your side — in that case, yes, it could be worth refinancing your mortgage.

Refinancing Factors To Consider

Before you jump on the phone with your mortgage lender, there are some factors that you should consider that can help you determine if you are a good candidate.

  • Your credit score: As mentioned before, a lower score will typically equate to a higher APR. See the table above for an idea of how your FICO credit score correlates with your APR. Refinancing typically doesn’t negatively affect your credit but there are instances where it could, like refinancing too often.
  • Your recent payment record: If you have a recent history of late or missed payments (not tied to the coronavirus pandemic) that could have a negative impact on your results.
  • Occupancy length: How long you’re planning on living at your house is another huge factor that can affect your savings.
  • How old your mortgage is: The amount of years that you have left on your mortgage is a huge factor. If you are close to paying off your mortgage, it’s likely not worth it.
  • Many of the same rules apply: Regardless of coronavirus, there are certain actions that can improve or hurt your chances when refinancing. To recap, those best practices are: 
    • Shopping around for low rates
    • Showing proof of your savings
    • Getting someone to cosign your loan
    • Showing proof of your income
    • Improving your credit score

Current Mortgage Rates

Mortgage rates are historically low right now, the lowest being 3.13% on March 2, 2020. As of April 16, 2020, the average 30-year fixed mortgage rate was 3.780%, according to Bankrate and 3.341% according to NerdWallet. These rates are changing rapidly so it’s important to keep tabs on their movements if you’re considering refinancing. Check out daily rate updates on Mortgage News Daily to stay up-to-date on mortgage rate information.

Challenges and Risks of Refinancing Your Home

There are always risks that come with refinancing your home. One of the biggest challenges that the current climate has created is the time it may take to get your refinancing request through due to the high demand right now. See that challenge and additional ones below:

  • Longer to acquire: Requests are backed up because lenders don’t have the capacity to process all of the requests that are coming in due to demand coupled with staffing shortages.
  • Closing costs: Most refinancing processes require some sort of fee for processing the request. Depending on your situation, that’s something to consider.
  • Savings loss: Just like refinancing at any other time, there is no guarantee of savings and many people end up in the same spot or with a loss in savings due to increased rates or loss of certain benefits.

Questions To Ask Your Mortgage Lender

Before calling or making an appointment with your lender it’s a great idea to use a mortgage refinancing calculator to get a preliminary idea of how refinancing could work out for you. If you see a positive result and decide to call your lender, make sure you have your proper documents handy and have questions ready to ask them. Some of those could include:

  • What is the estimated turnaround time for this process? 
  • What are the new interest rate and APR?
  • Will I be able to lock in my loan rate?
  • What additional costs would I incur (title policies, inspections, credit reports, etc.)?
  • Will the new agreement include prepayment penalties?

H3: COVID-19 Mortgage Resources

Below is a collection of helpful resources to make sure you understand your options and keep up with the ever-changing rates and information that’s being distributed.

Coronavirus-Specific Resources

Additional Mortgage Information

In the end, there is no ‘one size fits all’ answer to whether or not you should attempt to refinance your home. We recommend reaching out to an advisor who can evaluate your individual situation. If you’re worried about your credit score hurting your chances of refinancing, try a free credit consultation to learn more about your score and how credit repair could help your financial situation. 

Source: lexingtonlaw.com

How to refinance a mortgage with bad credit – Lexington Law

Refinancing your mortgage with a bad credit score is completely possible, but is a more complicated process than refinancing with a good score. Because your credit score is such a large aspect of any loan application and refinancing process, it is in your best interest to consider all of your options before moving forward.

Refinancing your mortgage could be a great opportunity to gain some payment flexibility or even take advantage of a lower interest rate. To avoid leaving money on the table, explore all of your options for refinancing with bad credit.

How Credit Scores Affect Refinancing

Lenders use your credit score and overall lending history to calculate the risk of lending you money. A lender will view a borrower with a low credit score caused by loan defaults and constant late payments as a high risk. Because the borrower has shown negative borrowing practices in the past the lender will be more reluctant to sign or refinance a loan.

30-Year Mortgage Rates Based on Credit Scores

FICO Score APR
760–850 4.6%
700–759 4.8%
680–699 5.0%
660–679 5.2%
640–659 5.6%
620–639 6.1%

Based on 2018 national averages for a $200,000 fixed loan.
Source: FICO

Putting together a mortgage refinancing package for a borrower with a bad financial history might cause the lender to increase the length of the loan term, increase the total interest rate or even increase the total monthly payments. Unfortunately, when a borrower has a pattern of falling behind on payments, a lender will offer more expensive refinancing packages to make up for the added risk.

Is Refinancing Right for You?

It is important to note that refinancing your mortgage may not always save you money. You might come out with the same financial deal or a worse option than you currently have, especially if you have a low credit score. In fact, looking at the average outcomes of Freddie Mac mortgages that were refinanced between 1994 and 2018 shows that only a small fraction of refinances actually resulted in the borrower saving money.

Graphic: Average Mortgage Refinancing Outcome

Source: Freddie Mac

While refinancing may not be right for everyone, it’s still important to consider the benefits of flexibility and length of terms. If you see yourself falling behind on payments or want to pay off your loan faster, refinancing your mortgage might still offer you some benefits.

Refinancing With Your Current Lender

When approaching your current lender about refinancing your mortgage it is first important to assess where you stand as a borrower. If you make payments on time and are in great financial health the lender will most likely want to continue doing business with you. However, if you have been late on payments and are struggling to cover other financial responsibilities the lender might be more reluctant to refinance your mortgage.

1. Shop Around for Low Rates

Before approaching your current lender for refinancing options, it is important to check for other options. To aid with any negotiations you should first check with other banks to see what interests rates are the best. Coming to your current lender after already shopping around for prices will give you more bargaining power to get a lower rate.

2. Show Proof of Savings

If your credit score is low but you have money in the bank a lender may still offer you a competitive rate. Showing proof of income and savings is a good option for new borrowers with short lending historys. For lenders, any proof that a borrower will be able to make payments toward a mortgage or loan will lower the overall lending risk and make a positive impact on the terms of the refinancing agreement.

3. Get a Loan Cosigner

If you have a low credit score and do not have sufficient money in the bank to lower your overall risk, you can use a loan cosigner. A cosigner shows the validity of an agreement and essentially promises to pay any debts that are outstanding if the borrower cannot pay. Depending on your financial situation, it can be difficult to get someone to agree to be your loan cosigner. As such, you should only approach people you’re close with.

4. Show Proof of Income

Even if you do not have a large amount of savings in the bank you can still demonstrate you will make payments on time and carry through with your mortgage agreement by showing proof of income. If you have a well-paying job or have sufficient income coming in, a lender will be more likely to offer a good refinancing option to you. Even without money in the bank or a good credit score, showing proof of income demonstrates that you are financially stable enough to make payments on the loan.

5. Improve Your Credit Score

Before visiting your lender to inquire about mortgage refinancing options you should first look at your credit report for points of action around how you can build your credit score. If your credit report is full of negative items like late payments, hard inquiries and delinquent accounts there could be some places to make up some extra points. Through a series of disputes, letters and phone calls with the major credit agencies you can work toward getting a higher score. There are also companies that offer credit repair solutions that can get your credit removal cases rolling to help improve your score.

Consider Cash-Out Refinancing

Cash-out refinancing is a mortgage refinancing option ideal for people who owe less than their house is worth. It is important to note that a cash-out refinancing option trades your current loan for a cash payment and a larger loan. Lenders can typically refinance a loan for up to 80 percent of the current market value.

Equity is earned on a home when its market value price increases over the price in which you paid for it. Earned equity is normally cashed out with the sale of a home, but it can also be tapped into with cash-out refinancing.

Graphic: 80% have tappable equity on their home

The largest disadvantage to a cash-out refinance is the equity loss of your investment. Although the amount of money between what you currently owe and what your house is valued can be a sizable help for short-term debts, you will still be accountable to pay back the new and larger loan in the long term.

Apply for the Home Affordable Refinance Program

The Home Affordable Refinance Program (HARP) is an initiative created by the Federal Housing Finance Agency following the 2008 economic recession, which caused large mortgage defaults in America. With the sudden drop in housing prices, many Americans were overpaying for their mortgages. HARP has helped refinance over 3 million mortgages so far and represents over 20 percent of all refinances. It is important to note that HARP is not the best solution for everyone, and has five main requirements for eligibility.

  • Your loan is currently owned by the mortgage-backed securities companies Freddie Mac or Fannie Mae.
  • Your mortgage/loan was signed before May 31, 2009.
  • Your current loan-to-value ratio is over 80 percent.
  • You are up to date with your mortgage payments and have not missed a payment in the last six months nor missed more than one payment in the past year.
  • The mortgage was either for your current residence, a second home or a four-unit investment property.

Seek FHA Refinancing

The Federal Housing Administration has a number of refinancing options built to help homeowners with existing FHA secured loans. Unfortunately, the streamlined refinancing is not available for loans that originated outside of any Federal Housing Administration secured lenders. One benefit of refinancing through the FHA is credit or income checks are not part of the process. If your mortgage is secured with the FHA, there are some prerequisites for the refinancing program.

  • You are current on payments and have not missed or been late on a payment for the past year.
  • You have owned the house for over six months.
  • You use an FHA approved lender or an FHA approved bank when refinancing.

If you are still unsure if you qualify the FHA mortgage portal includes a step-by-step guide that can give you an estimate of your best refinancing options available.

Mortgage Refinancing During the Coronavirus Outbreak

Graphic: Coronavirus Impact on Refinancing Your Mortgage

The coronavirus outbreak has impacted our lives on every front. Loss of jobs and income has lead to uncertainty and has made it difficult for many Americans to make their mortgage payments. Many homeowners have been taking advantage of the mortgage relief that was part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), legislation that was signed in on March 27, 2020. This allows eligible homeowners with FHA-insured mortgages to have their payments due dates pushed back, also known as forbearance.  

Other homeowners are taking this opportunity to refinance their mortgage. According to the Mortgage Bankers Association, refinancing applications are being filed at a rate that’s 168% higher than during the same period in 2019. Though re-financing sounds like an attractive plan-of-action, it may not be right for everyone — there are additional considerations to make if your credit score is less than ideal.

To better understand your options, see some refinancing factors, considerations, challenges and resources below.

Is Refinancing Worth It?

It is worth looking into refinancing but this may not be the right move for you depending on a variety of factors. In a broader sense, this is a great opportunity to save money if the determining factors are on your side — in that case, yes, it could be worth refinancing your mortgage.

Refinancing Factors To Consider

Before you jump on the phone with your mortgage lender, there are some factors that you should consider that can help you determine if you are a good candidate.

  • Your credit score: As mentioned before, a lower score will typically equate to a higher APR. See the table above for an idea of how your FICO credit score correlates with your APR. Refinancing typically doesn’t negatively affect your credit but there are instances where it could, like refinancing too often.
  • Your recent payment record: If you have a recent history of late or missed payments (not tied to the coronavirus pandemic) that could have a negative impact on your results.
  • Occupancy length: How long you’re planning on living at your house is another huge factor that can affect your savings.
  • How old your mortgage is: The amount of years that you have left on your mortgage is a huge factor. If you are close to paying off your mortgage, it’s likely not worth it.
  • Many of the same rules apply: Regardless of coronavirus, there are certain actions that can improve or hurt your chances when refinancing. To recap, those best practices are: 
    • Shopping around for low rates
    • Showing proof of your savings
    • Getting someone to cosign your loan
    • Showing proof of your income
    • Improving your credit score

Current Mortgage Rates

Mortgage rates are historically low right now, the lowest being 3.13% on March 2, 2020. As of April 16, 2020, the average 30-year fixed mortgage rate was 3.780%, according to Bankrate and 3.341% according to NerdWallet. These rates are changing rapidly so it’s important to keep tabs on their movements if you’re considering refinancing. Check out daily rate updates on Mortgage News Daily to stay up-to-date on mortgage rate information.

Challenges and Risks of Refinancing Your Home

There are always risks that come with refinancing your home. One of the biggest challenges that the current climate has created is the time it may take to get your refinancing request through due to the high demand right now. See that challenge and additional ones below:

  • Longer to acquire: Requests are backed up because lenders don’t have the capacity to process all of the requests that are coming in due to demand coupled with staffing shortages.
  • Closing costs: Most refinancing processes require some sort of fee for processing the request. Depending on your situation, that’s something to consider.
  • Savings loss: Just like refinancing at any other time, there is no guarantee of savings and many people end up in the same spot or with a loss in savings due to increased rates or loss of certain benefits.

Questions To Ask Your Mortgage Lender

Before calling or making an appointment with your lender it’s a great idea to use a mortgage refinancing calculator to get a preliminary idea of how refinancing could work out for you. If you see a positive result and decide to call your lender, make sure you have your proper documents handy and have questions ready to ask them. Some of those could include:

  • What is the estimated turnaround time for this process? 
  • What are the new interest rate and APR?
  • Will I be able to lock in my loan rate?
  • What additional costs would I incur (title policies, inspections, credit reports, etc.)?
  • Will the new agreement include prepayment penalties?

H3: COVID-19 Mortgage Resources

Below is a collection of helpful resources to make sure you understand your options and keep up with the ever-changing rates and information that’s being distributed.

Coronavirus-Specific Resources

Additional Mortgage Information

In the end, there is no ‘one size fits all’ answer to whether or not you should attempt to refinance your home. We recommend reaching out to an advisor who can evaluate your individual situation. If you’re worried about your credit score hurting your chances of refinancing, try a free credit consultation to learn more about your score and how credit repair could help your financial situation. 

Source: lexingtonlaw.com