Refinancing can help you save money and access low interest credit. For conventional rates, you need to wait at least two years after the closing of a bankruptcy. However, there are reasons to refinance sooner, especially if you are looking to rebuild your credit. When A Bankruptcy Hurts For the first two years after a bankruptcy, your credit score will be significantly impacted. Right after discharge, your score hovers around 500, no matter how you are handling your credit payments. But soon your score will begin to rise with each month of on-time payments. After two years, your bankruptcy ceases to really hurt your score. Instead, financing companies look at more recent payment history, debt ratio, and income level. By practicing good credit habits, you can qualify for prime financing 24 months after a bankruptcy. Until then, refinancing rates will be 1% to 12% higher than prime rates. The longer you wait to refinance, the better your rates. But there are ways to improve your loan application. Improving Your Loan Application To offset your bankruptcy, keep new debt to a minimum. While you want to start using credit to reestablish your score, don't open too many accounts. Even if you aren't carry debt on those accounts, they will hurt your credit score. Building up your cash reserves is also important to financial lenders. Ideally, they want to see at least two month's worth of reserves in your savings. But to qualify for better rates, include even more in your savings plan. Other Financing Options To Consider If you are simply looking for additional credit, consider applying for a home equity loan instead. That way you can take advantage of your equity and keep your low interest mortgage. You may also decide to refinance with an interest only mortgage, at least for the first year or two. Then you can refinance with your better credit score later on. With this approach you decrease your monthly payments and bet on improving your credit. The best thing you can do for yourself when refinancing is to investigate lenders. Go online to read about their financing options. Then request loan quotes to compare offers from other companies. Not only will you be saving time, but you will also get the best refinancing deal. |
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