Bad Credit Refinance

By: Ken Marlborough

Creditors give first preference to borrowers who have a good credit rating in their credit report. However, for borrowers who may not have a perfect credit score, refinancing is not out of reach. In this article we'll see what is meant by a Bad Credit report and how to improve your credit profile.

Most lenders use FICO credit scores when assessing the borrower's credit report. The FICO credit score system, the most popular system in Refinance industry today, derives its acronym from `Fair, Isaac and Co'., the company that developed the system in the 1950s. The main advantage of the system is that all the information provided by the borrower in the credit report is analyzed, and a single score given.

There are 5 factors that are weighted by lenders when assigning the credit score. They are: Borrower's Payment History [Punctuality of repayment of any earlier loan/s] (35%), Amounts that are owed by the borrower on various accounts (30%), Credit History Length [Length of Payment history] (15%), Borrower's existing credit types and how they are used (10%), and New Credit [Number of recently opened accounts, and the ratio of these new accounts to that of total number of credit accounts] (10%). Though the weight is only 10%, the last mentioned factor is very important. The lender may disapprove a loan if the new credit ratio is high.

If the borrower's credit report scores low, the borrower can still get the score improved by: Paying all bills in time, keeping existing credits under control [by having minimum number of accounts or by using `Debt Consolidation'], limiting the number of credit inquiries and paying off unnecessary debt.

According to experts, a credit report review at least once a year, especially before applying for Refinancing, can be of immense use to the borrower.

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