I recently spoke to a friend who had poor credit score. He has credit card debt, student loan debt, a second mortgage (loan consolidation) and obviously a mortgage as well.<\/p>\n
He was paying over 7% on his mortgage. This mortgage was taken out a few years ago and the remaining mortgage to home value (questionable) is about 60%. <\/p>\n
Given that the Federal Reserve has lowered rates by 75 basis points, mortgage rates have fallen as well to below 6%. That applies to conforming mortgages (ie mortgages below $417,000) and not jumbo mortgages. <\/p>\n
Well, my friend’s mortgage is definitely a conforming mortgage. He decided to refinance his existing mortgage because he was paying an above market interest rate. He applied to a couple of banks and guess what? He was turned down for them. What was the reason?<\/p>\n
Very simple actually. <\/p>\n
1. His credit scores were bad<\/p>\n
2. He had too much debt.<\/p>\n
3. His interest payment to income ratio is too high.<\/p>\n
4. He even had incorrect “bad reports” on his credit report.<\/p>\n
My friend was disappointed to say the least. If he had been able to refinance, he would save a couple of hundred dollars on interest payment and could use that to reduce his debt faster. But this episode was a wakeup call I guess. Here is his plan going forward :<\/p>\n
1. Develop a plan to reduce his credit card and student loans in about a year. <\/p>\n
2. Remove any incorrect negative reports on his credit reports.<\/p>\n
3. Apply for a mortgage refinance at the end of the year. <\/p>\n
I guess this is a clear example of the price of having poor credit – and that is it makes it even harder to improve your credit or reduce your debt faster. I’m glad he is now taking action and I’m sure at the end of this year, his situation will have improved.<\/p>\n","protected":false},"excerpt":{"rendered":"
I recently spoke to a friend who had poor credit score. He has credit card debt, student loan debt, a second mortgage (loan consolidation) and obviously a mortgage as well. He was paying over 7% on his mortgage. This mortgage was taken out a few years ago and the remaining mortgage to home value (questionable) […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[9],"tags":[],"yoast_head":"\n