How Credit Ratings Affect Refinancing

Alas, very few of us can claim perfect credit ratings. At Home Refinance we work with people every day whose credit ratings range from mediocre to highly damaged. It’s best to start out with awareness of what your credit rating is and how it will affect the refinancing process.

Lenders typically place potential borrowers into a credit risk category. Here are the categories along with an explanation of the characteristics that determine which one you are placed in.

If you find yourself in a less-than-perfect credit category, don’t despair. The majority of people have blemishes of some kind on their credit history. And most people can successfully refinance their home. Give us a call anytime, and we’ll explain how to successfully navigate the refinance process no matter what your credit rating may be.
‘A’ Credit — This borrower has perfect credit, adequate income, and the required down payment. If the borrower lacks one of these features, an excess in one of the other areas can compensate. For example, if a borrower’s income is modest, a large down payment could compensate. A blemish on the borrower’s credit report can be overlooked if the borrower can explain the problem as due to a job transition, medical issue or some other acceptable excuse.

A’ Minus Credit — Inclusion in this category means you are allowed a maximum of two late payments of 30 days or one late payment of 60 days. One collection account for a past-due bill of less than $500 is accepted. Medical bills are normally disregarded.

B’ Credit — This category allows up to four late payments of 30 days, or two late payments of 60 days. One late payment of 90 days is allowed within the last year. Collection accounts for less than $1000 are accepted. However, any outstanding collection accounts under four years old must be paid off. A bankruptcy or foreclosure which was settled before the previous 18 months is allowed.

‘C’ Credit — To obtain this credit category you may have no more than six late payments of 30 days each, three late payments of 60 days each, or two late payments of 90 days each. Open collection accounts may not exceed $4000 and must be paid off in full. A bankruptcy or foreclosure settled previous to the last year is allowed.

D’ Credit — In this category, the credit record will show repeated failure to make payments on time. Any open collections accounts or judgments must be paid off through loan proceeds. A bankruptcy or foreclosure prior to the last six months is allowed, as long as mortgage payments have not been more than 90 days overdue.