What Gives You a Bad Credit Score?

Almost every person fears to have bad credit. However, not all of them know what’s considered bad credit. Well, for those who don’t know the definition of bad credit differs on what credit scoring system you have.  

To make things simple, a low credit score means that a person represents a higher risk to lenders since they’re considered to have a higher chance of defaulting on a loan. 

On the other hand, an excellent credit score shows creditors that they could be quite self-assured that a client will repay loans since they’ve shown responsible behavior when it comes to credit in the previous years.  

Before you search for the best credit repair programs, you should know a couple of things that can affect your credit score. Here are some of them: 

New Credit 

The new credit aspect of your score considers the number of new accounts in your credit file as well as the hard inquiries on the credit report. It could have a bad impact on the credit score if you’ve got a lot of inquiries and/or newly opened accounts on your credit report. The reason for this is that it appears like you’re attempting to get a lot of credit and might not have the ability or the intention to pay all of it in the future.  

But, this aspect also signifies 10% of your credit score only. Thus, it’s almost certain that it won’t be the reason why you’ve got a bad credit score if you’ve got a lot of new accounts or inquiries.  

Credit Mix 

The best mix of credit needs having a balance of both installment and revolving accounts. Lines of credit and credit cards are a couple of examples of revolving accounts. Installment accounts include home loans, student loans, car loans, and other loans that you pay in installments.  

In general, having too few accounts or too few accounts of either type can contribute to bad credit. However, it isn’t likely to be the main driver of bad credit since it only contributes 10% of the credit score.  

Length of Credit History 

The age of your credit is associated with a lower risk of defaulting on your loans. It can hurt your credit score if you do not have enough credit age.  

Credit Use 

This refers to how much revolving loan you’ve got compared to the amount of available credit you’ve got. To make things simple, are your credit cards all maxed out? Do they have 0 balances? Are they somewhere in between? It can impact your score negatively if you’ve got higher balances because it means that you might be close to being financially overextended.  

Payment History 

This category looks at how frequently you pay your loan on time compared to how often you’re late in paying the bills. The longer your bills go without being paid and the more payments you miss, the lower your credit score will be. This will greatly affect your score since it contributes 35% of your credit score.   

Refinancing a Mortgage with a Poor Credit Score

It’s totally possible to refinance your mortgage with bad credit. However, compared to refinancing with an excellent score, it’s a more complex process. Before you move forward, it’s in your best interest to think about all of your options. The reason for this is that your credit score is considered a huge factor of any refinancing and loan application process. 

Refinancing your mortgage can be an ideal chance to take advantage of a lower interest rate or gain some payment flexibility. If you want to refinance with bad credit, you have to explore all of your options, such as Pittsburgh credit repair and more.  

Refinancing with the Current Lender 

First, it’s vital to check where you stand as a debtor when contacting your current lender about refinancing your mortgage. The lender will probably want to keep doing business with you if you are in excellent financial health and make payments on time. But, the lender may be more reluctant to refinance your mortgage if you’re struggling to cover financial responsibilities and you’ve been late on payments.  

First, you have to look at your credit report points before you visit your lender to ask about mortgage refinancing options. There can be a couple of areas to make up some additional points if your credit report is filled with negative items such as delinquent accounts, hard inquiries, and late payments. You can work toward getting a better score through a series of phone calls, letters, and disputes with the major credit companies. Aside from that, there are companies that provide credit repair services that can help improve your credit score.  

Is Refinancing for You? 

It’s vital to keep in mind that refinancing your mortgage might not save you money always. You may come out with a worse option or the same financial deal than you have currently. This is particularly true if you’ve got a low credit score.  

Though refinancing might not be ideal for everybody, it is still vital to think about the advantages of the length of terms and flexibility. Refinancing your mortgage may still provide you a couple of advantages if you want to pay off your lawn faster or see yourself falling behind on payments. 

Refinancing and Credit Scores 

To calculate the risk of lending you cash, lenders utilize your credit score and lending history. A lender will consider a borrower as a high risk if he/she has a low credit score caused by constant late payments and loan defaults. The lender will be more reluctant to refinance or sign a loan since the borrower has shown negative borrowing practices in the previous years.  

The lender might have to increase the overall monthly payments, increase the total interest rate, or increase the length of the loan term if they’ve got to put together a mortgage refinancing package for a borrower with a bad financial history. Unluckily, a lender will provide more expensive refinancing packages whenever a borrower has a pattern of falling behind on payments. They do this to make up for the extra risk.