If you are thinking about refinancing your home, you may want to do it quickly. Mortgage refinancing rates have been on a rise since hitting a historically low 4.17% rate on 30-year fixed rate mortgages, and they are only expected to continue go up.
So, why have so few homeowners refinanced? The sad truth is many have found they can’t refinance because of a low credit score, lowered largely because of the way debt is being weighted right now, especially credit card debt.
Two factors in particular may be keeping you from refinancing your home:
- LOWERED SPENDING LIMITS: In anticipation of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act passed last year, banks went on a credit pruning spree, cutting available credit lines on millions of borrowers. This, in turn, raised affected borrowers’ debt to credit ratios (also called “credit utilization rate”), a component of credit score calculations which can account for as much as 30 percent of a borrower’s credit score.
- INCREASED CREDIT CARD DEBT: Of course, many other would-be borrowers have increased their credit card debt through overspending, a fact largely attributable to high rates of unemployment, an unusually long average unemployment that was typical of the last few years, and retail incentives, such as low prices and increased value for the dollar when buying many products and services.
If you fit this bill, spend some time paying down your credit card debt. You may also want to consider taking out a loan to pay off your credit cards. A debt consolidation loan will look more at your payment history, your reasons for having such high credit card debt, and your ability to repay the loan. Once you receive such a loan and the credit card debt is removed, you can reapply for home refinancing with your credit score intact and likely much higher than it was previously.