How to Refinance Your Mortgage When Paying on Time But Have a Bad Credit Report

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It's possible to refinance your mortgage with bad credit, but it's going to be more expensive. If you're refinancing to land a low interest rate, it can be much harder if your credit is poor. The low rates mortgage lenders advertise on their websites are usually reserved for borrowers with A-list credit.

Improve Your Credit

You can download your credit reports from Experian, TransUnion and Equifax for free, once a year, from the website. Go over your report, check for any errors -- late payments you've already settled, for instance -- and get them corrected. Work on fixing any genuine credit problems, for example settling past-due accounts and paying your current bills promptly. Over time, that will raise your score, which will help landing a better rate.

Look Good

If the rest of your refinance application looks good, it increases the chance you can refinance. For example, refi lenders prefer a debt-to-income ratio -- the ratio of your all your monthly debt payments to your monthly income -- of no higher than 43 percent, preferably less. If you can pay down debt and improve your ratio, you're a better candidate. Meeting other requirements, such as having at least two or three years in your current job and salary, helps too.

Shop Around

If you're happy with your current lender, that's a good place to start shopping. Refinancing with anyone else costs the lender all that future interest, so she has a vested interest in offering you a good deal. She may not require you pay for a title search, because you already did one for the original mortgage. Don't hesitate to shop around, though. Getting offers from three or four lenders may lead to a better deal.


If your house has lost a lot of value, it may be impossible to refinance. However, if your mortgage is owned or backed by the federal Freddie Mac or Fannie Mae corporations, you can apply to the Home Affordable Refinance Program. HARP offers lenders incentives to refinance homes where the loan is 80 percent of the property value or more. You have to be current in your payments. The program runs, at time of writing, through the end of 2015.