When you want to refinance with bad credit issues staining your credit report, it might feel difficult but all is not necessarily lost.
For a start, all mainstream lenders, including the big four, rarely if ever approve a home loan to someone with a default or bad payment history in their credit report. This means that you will have to seek an alternative lender with a more flexible lending policy.
But before we go any further let’s list some basic facts and definitions so you understand exactly how the process works and what you can do about it.
Credit reports.
In Australia every time you make an application for finance or credit of any type including home loans, personal loans, credit cards, or mobile phone plans, a record is kept by a central recording agency known as Veda Advantage.
This agency maintains strictly confidential information about your applications but does not record the outcome. In other words if you apply for a personal loan for $20,000 with the local ANZ bank, that is the extent of record that is kept.
If you try to refinance with bad credit, the agency records will alert your lender.
Usually, after five years, these enquiries drop off so the credit report is only a snapshot of the most recent five-year period.
Other matters such as defaults, court judgements or bankruptcies remain on the record permanently or for at least five years after they are paid. Most bankruptcies remain on the record permanently.
This is important information because you will need to have a complete record of your credit history when applying for any credit. Veda will provide a free copy on request, but it can take a few weeks to arrive in the mail. Alternatively, you can pay a small fee and it will be e-mailed to you within 24 hours.
They can be contacted on 1300 921 621.
Is it possible to refinance with bad credit?
There is no simple answer to whether you can refinance with bad credit because every case is judged on its merits. But, depending upon the extent of your credit impairment, it might be possible to obtain a loan.
The downside is that lenders in this category have strict criteria, so not everyone will qualify. Additionally, the interest rate charged by these lenders can be substantially higher than the standard home loan, so debt consolidation may not be worth it. For this reason, you should consider whether making an application is the wisest move because you may end up paying more than you expect.
It is absolutely vital to get more detailed information from a mortgage broker so that your exact cash flow position can be determined before you go any further.
A mortgage broker will be able to give you an estimate of the normal interest rate so you are better prepared to make your application. To refinance with bad credit only makes sense if you are going to be in a better position by doing so.
Let’s take a look at some of the criteria these lenders use.
- Strong employment history. One of the things these lenders love to see is when an applicant has been in the same job with the same employer for a number of years. Stability and continuity mean everything when you want to refinance with bad credit.
- Location of the property. Most alternative lenders will only consider properties in prime locations. The only way to find out is to ask whether your property is in a suitable postcode.
- Mortgage arrears. At the time of writing this in June 2011, no lender will approve a loan if you have any mortgage arrears. Credit defaults and judgements might be accepted, for a price, but if you are behind on your home loan repayments you have little or no chance.
This list is not complete, but you will get a very clear picture from the above as to whether or not you are likely to have a refinance with bad credit application approved. It is worthwhile noting however that as the credit market in Australia continues to loosen after the global financial crisis the criteria may be relaxed and return to something similar to what it was several years ago.
In those days, the longest period of mortgage arrears that will be tolerated was six months. For this reason it is worthwhile checking with a mortgage broker to obtain up-to-date policies.
Can I refinance with bad credit by repairing my credit report?
Yes, because if your credit report contains little or no history of defaults you’ll be able to apply with any mainstream lender and be subject to the usual credit requirements. There are some companies that specialise in repairing credit and you can obtain a free assessment simply by making a phone call to them.
Phone “We Fix Credit” on 1300 003 655.
The bottom line however is that you will not be able to have your credit history changed if you have not actually paid the defaults in question. If you feel that the report is inaccurate you can make a complaint to Veda Advantage who will investigate your claim.
Credit repair companies simply assist you to make your credit report as accurate as possible within the law.
How do I qualify to refinance with bad credit?
In reality, the best way to approach a bad debt situation is to clean up your credit file and get your finances under control. This means doing a budget to clarify your cash flow and then manage your debts accordingly.
Once you do this it might be possible to refinance with bad credit even if you have not succeeded previously.
If things get out of hand and it is not possible to pay your creditors on time the important thing to do is to act early. Phone your creditors as soon as you anticipate difficulty in making repayments and discuss are a payment plan you can manage.
Most creditors, including banks and credit card companies will be able to assist you in this process and you will find it a lot easier to negotiate if you make the first move.
If you do enter into a payment arrangement in this way, make sure you meet your commitments on time every month. In other words don’t make a promise you can’t keep.
If this is not possible, you might find yourself facing the prospect of bankruptcy, but even here there are alternatives.
In much the same way as we talked about negotiating a repayment arrangement above, there are formal way to do this under the Bankruptcy Act as well.
It is called a part IX or part X arrangement. You will need to seek specific professional advice either through your accountant or financial adviser who will direct you to the appropriate expert.
So, you can see that if you want to refinance with bad credit, it won’t be easy but there may be some answers.
