When you refinance your home loan, you’ll need to go through the same process that led you to set up your mortgage in the first place. As you’re applying for a new home loan to pay out your existing one, the banks will be looking at your finances to decide whether you should be approved.
If you have a bad credit score, it will have an impact on your chances, so it’s best to get your finances into good shape before you try to refinance. With a better credit score, you’ll have more opportunities to get a good deal and find a home loan that works for you.
Here’s what you should do if you want to look at refinancing with bad credit.
Find Out Your Credit Score
First of all, you need to understand your credit situation. Your credit history will show if you are behind in your repayments or have money owing on
your home loans, personal loans, credit cards and even utility bills. Previously declined loan applications and filing for bankruptcy can also show up in your history.
If you want to know exactly where you stand, you can find out your credit score online or even access your full credit file to see what has been flagged in your history. You can get one free copy of your credit file every year by contacting any of Australia’s credit reporting agencies, including Equifax and Experian.
Take Care of Your Debt
If you have outstanding debt on your file, you want to find a way to pay this off as soon as you can. You could talk to your existing lender about consolidating your debt, which could actually involve refinancing your home loan.
It might not give you the chance to switch to another home loan product or lower your interest rate, but it will make it easier for you to manage your debt going forward. As your credit cards and personal loans will likely have higher interest rates than your mortgage, it will also help you reduce the total amount you owe. The faster you get on top of your debt, the sooner you’ll be able to look at mortgage refinancing in a way that will benefit you moving forward.
Alternatively, you could look at using your savings or restructuring your budget to help you get on top of your debts. Try to avoid using your credit cards in the meantime and ask your lender if you can go onto a payment plan if needed.