Refinancing Types of Credit

If you're hoping to refinance your mortgage, be prepared for a much tougher lending environment than in recent years. Not only are lenders taking pains to verify borrowers' income and other financial information, but they're looking at the neighborhoods where homes are located.

Lenders use credit scores to look at your payment history, current level of debt, types of credit, and length of time credit accounts have been open. Obviously the benefits of having excellent credit can't be overstated. Having a strong credit history means you're more likely to qualify for a refinance. If your credit score is 750 or above, you'll usually be offered the best interest rates and other terms.

A good credit score is usually above 650. That means that you'll probably be approved for a refinance in most cases. However, keep in mind that even if you have excellent or good credit, it still may be tough to qualify for the best rates in the current economic climate. Some cautious lenders may not offer you the best interest rates if you don't have much equity in your home or live in an area with a large number of foreclosures.

Having fair credit means you'll have a tougher time qualifying for a refinance, and if approved will pay a higher rate than someone with a better score. If you have a fair credit score around 640 you will have to really prove that you have the income and debt levels to manage monthly mortgage payments.